O Pioneers!

Deck: 

A land rush in the burgeoning home energy management market.

Fortnightly Magazine - November 2009

The Prius Effect—a term that’s gained currency in sustainability circles—is shorthand for the strong link between information and behavior demonstrated by the popular Toyota hybrid.

The car was among the first to provide a real-time fuel consumption gage on the dash; step hard on the gas, watch the MPG gage go down. Coast gently along and see the savings. Drivers with the gage become aware of—even obsessive about—the way their driving habits affect consumption, and by extension, cost.

It’s a simple idea with a big efficiency impact, and it shows clearly that when consumers are given timely, meaningful information about energy use, they make different decisions. Not surprisingly, the Prius Effect often is referenced in discussions of the burgeoning home energy management market.

“Customers like information,” says Dan Delurey, executive director of the Demand Response Coordinating Committee, an energy policy non-profit. “They use that information to change the way they use electricity. Numerous pilot programs and research efforts have demonstrated the Prius Effect. It’s one of the things that’s driving this market.”

And driven it is. The last year has seen a veritable explosion in an area that previously was a nascent extension of the greater smart grid—the stuff of small pilot programs and futurists. Not anymore.

“Last year there was a lot of stuff out there that was just vaporware, but now it’s like, ‘kaboom!’” says Lynne Kiesling, an economist at Northwestern University who focuses on the utility sector. “The land rush is a good metaphor. Part of what’s driving the frenzy is the federal stimulus money, much like the government opening Oklahoma drove the original land rush.”

The pioneer analogy works on another level, too. Like the Sooners, companies racing to plant their stakes in the home energy management landscape aren’t really sure what they’re in for. Standards are still coalescing for privacy, security and interoperability.

“Another thing that’s still not there is a convergence of efficiency, demand response, smart grid and climate-change mitigation programs,” Delurey says. “These have to be in silos for certain reasons, obviously. But there’s a lot of convergence needed, and that will be a big factor in how this ramps up.”

Then there’s the big question of how or whether utilities will adapt their business models to incorporate the real potential of home-energy management. The technology is ready for a robust, nuanced customer relationship, dynamic pricing and vibrant retail competition. But disparate regulation and the industry’s traditional caution present enormous forces of inertia.

“The utilities can talk a mean streak about innovating their business model to be more consumer oriented, which is a good thing, because for the past hundred years they haven’t been, and it would be nice if they would try,” Kiesling says. “But utilities have an interest in keeping electricity as a boring, in-the-background, don’t-think-about-it product, because that reinforces their business model.”

In any event, third-party entrants to the market aren’t waiting for utilities to sort it out. They’re pushing onward, in hopes they’ll be well established by the time standards and business models catch up. Some innovations and approaches surely will pan out better than others, but that’s the way it goes on the frontier.

End Run

In the short term, the most direct tack is to sidestep utilities altogether and sell directly to consumers. That’s the initial strategy of EcoDog, a startup selling a combined hardware and software package. The company plans to launch its product, called FIDO, this fall, with volume consumer sales beginning in early 2010.

The company is marketing FIDO as a discrete smart-home system that doesn’t require any interface with the utility. The basic hardware component attaches to the customer’s breaker panel, and monitors the energy use on each circuit in the home. Additionally, the company plans to add monitoring and control for individual appliances. That data feeds through the home’s electrical wiring and into a home computer via a special converter.

“Our software shows you a floor plan of your home,” says EcoDog CEO Ron Pitt. “You see what’s using energy in your home and how much it costs you. Then it takes that information and couples it with current and projected rate information from the utility company, and comes up with real-world recommendations about what you can do in your home to save the most money on your electric bill.”

Pitt sees a variety of potential customers, from homebuilders who want premium features for a greener product, to security, HVAC and electrical contractors looking to diversify.

“There’s going to be a utility channel as well; some utilities will want to provide these products to their customers,” he says. “But the bottom line is, when you start talking about what the customer needs and what the homeowner needs, it varies widely.”

Companies like EcoDog are betting against the killer app, figuring that the range of consumer desires and the cacophony of regulators and utilities will preclude a single solution. From Pitt’s point of view, most utilities are content to let third-party developers take the lead in creating home energy management alternatives for consumers.

“The thing about utility companies is, they’re utility companies,” he says. “I think one of the things that they’re doing that’s smart is saying, ‘We don’t have core competency in doing all this software, that’s not what we do. So we’re going to leave it to the guys out there who know how to do it.’”

Cloud Power

At the other end of the spectrum, tech behemoths Microsoft and Google are jumping into the fray with web-based applications that hope to become as ubiquitous as a certain social networking site.

“I’m not sure if you ever want to call it the Facebook of energy, but we certainly want it to be a destination,” says Jon Arnold, Microsoft’s worldwide power and utilities director, of the Hohm application, which went live in June. “We want it to be a place you can look at your energy use, see how you compare, and get information and help from others.”

It works like this: Customers go to the Hohm page (it’s all online, no software to load) and enter as much data as possible about their homes, utilities and personal energy use patterns. The site then provides energy use profiles, comparisons to others (are you a miser or a hog?) and efficiency advice.

The application draws on building efficiency modeling and climate data licensed from the DOE’s Lawrence Berkeley Lab. Microsoft says Hohm is driven by a self-learning engine, so the more people participate, the more refined the profiles and recommendations become. In its debut iteration, Hohm generally isn’t connected to a customer’s actual electricity use—although in October, Seattle City Light offered customers a direct online link between Hohm and their monthly consumption data, saving them the step of entering it manually from their bill.

“We intend to evolve this into what we call proactive energy management and demand response,” Arnold says. “This is the first step along that journey.”

Microsoft is focusing on hooking customers with the interface and hoping later to fold them into a more robust application. “The second version is where we really get into home automation,” he says. “We’re doing a lot of work around this next generation—interactive energy displays, thermostat controls. The rollout is really just providing a big picture view of how the home is using energy. The long-term goal is to get more granular and interactive over time.”

Several utilities participated in the launch version of Hohm, including Puget Sound Energy, Sacramento Municipal Utility District, Seattle City Light and Xcel Energy. Like Microsoft, they see it as the first step in an ongoing development process.

“A lot is going on in this area,” says Raj Purohit, Xcel’s Web program manager. “We expect our customers to get real-time information eventually, but there are a couple of interim steps in the process. The smart grid won’t happen over night. At this point the Web is the best channel for customers to get the information we have.”

Killer Platform

While Microsoft and others look to end user buy-in to drive their products, some developers take a more traditional path.

“The reality of the world is that in order to get to the consumer, the gatekeeper is the utility,” Kiesling says. “That means from a business strategy perspective, they have to sell to the utility.”

In one sense, the vendor’s stakes are higher. There’s a lot riding on every big pitch to a utility. But if they win the bid, their end-user customer acquisition cost is comparatively miniscule.

For example, ecobee, a smart thermostat manufacturer, sells its product to utilities for use in pilot programs in order to get the inside marketing track down the line.

“Most of the utilities we’ve talked to have a two- or three-step process,” says ecobee CEO Stuart Lombard. “They’ll do some really small scale pilots, sometimes less than 100 homes. Then they’ll move to a larger pilot in the range of 2,000 to 20,000 homes. For those pilots they buy the equipment. When it comes time for broad rollout to their customer base, they’ll say to the consumer, ‘You can buy one of these approved products. Pick the one you want, and we’ll give you a rebate on your bill.’”

If a manufacturer’s product was in the pilot, it’s almost sure to be on the rollout short list.

The ecobee thermostat, which costs about $200 and started shipping in February, is built on smart-phone architecture that allows it to update software wirelessly and expand capabilities as smart-meter infrastructure comes online. It has a color screen and multiple radio interfaces that can connect to the smart meter via Zigbee or by a proprietary AMI protocol.

“No one knows what the right answer is in terms of what consumers ultimately will use,” Lombard says. “So it’s really important to have a flexible platform that you can upgrade, and that allows you to change the applications.”

Lombard says he doesn’t see online energy portals as competitors, but complementary products, and he’s optimistic that smart-meter rollouts will accelerate dramatically over the next few years. The company’s strategy assumes that as convergence occurs, every home will need a hub device, and a communication-rich thermostat will be ideally suited to the task.

“In the short term it’s going to be a constellation of solutions,” he says. “Our goal is to create an environment where the barrier to communication is very low, kind of like an iPhone model. There are thousands of iPhone applications, and consumers can choose the ones they want. It’s survival of the fittest, but you have this great consumer experience with a lot of choice and a lot of compelling applications. I’m not so sure we’re going to have a killer app in the smart grid world, but more a killer platform that enables a bunch of applications depending on what you’re trying to accomplish.”

Bite-Sized Data

eMeter is taking a hybridized approach. The company’s Energy Engage product is a web portal. But unlike Microsoft Hohm’s cloud model, Energy Engage is embedded in the utility’s own Web site.

Sam Klepper, head of eMeter’s consumer energy group, calls other portals passive experiences, in which customers must take the initiative to derive value. Klepper says the company designed its portal to actively engage consumers by e-mail or text message when costs go up.

“Your bill can double or triple toward the end of the month on a tiered-pricing program,” he says. “With Energy Engage, you get alerts when that happens. It not only gives visibility into usage, but also its relationship to cost and the environmental impact. It’s a fuller story.” The interface also allows users to obtain more detailed data, such as comparisons by neighborhood or home size, but it’s designed to be user friendly and to give consumers only as much information as they want.

“We found that our original look, which had many more charts and graphs, was intimidating to customers,” Klepper says. “So we pulled back, bubbled up the information in bite-sized pieces to this higher level, with the ability to click on a button and get information with what we call ‘progressive reveal.’”

Also, because the data is drawn from real usage information and not estimated, eMeter hopes its approach will allow the Prius Effect to really kick in. In other words, customers will see how their usage affects cost over an actual billing cycle, and will adjust their behavior to meet a budget.

To what degree customers will actively change their consumption patterns remains unclear, but early experiences suggest many at least are interested in understanding their usage better—and social networking Web sites have changed their expectations about what’s possible. “We’ve had quite a few of our customers ask about doing comparative usage—between people in their area or service territory,” says Michele Delka, AMI director at Westar, a Kansas utility that has collaborated with eMeter on the product’s development. “People don’t think outside what they believe to be available. Two years ago they never thought they would be asking for comparative usage.”

Energy Engage might be among the most advanced products currently in the market, but there’s a rub. Because it’s completely tethered to utilities, it can’t go viral. Its prospective advantage in information delivery is limited by its client base, and utilities—not consumers—are eMeter’s clients. Unless Energy Engage becomes an industry standard for utility websites, it never will be energy’s Facebook.

X Factor

In this sense, eMeter is up against the same fundamental conundrum as every player in the home energy management market—the conundrum of market design.

“To realize the full potential of the smart grid, you have to involve the consumer,” Klepper says. “Peak demand reduction, new pricing programs and better customer satisfaction do require some involvement on the consumer side. Generally utilities don’t have capabilities to build these new consumer-facing services that can take advantage of the smart grid.”

And even if utilities gained such capabilities, they might lack the motivation to pursue opportunities in the market for home energy management.

When it comes to realizing the market potential of technologies, consumers drive change. But except in deregulated markets like Texas, which have decoupled retail services from T&D, a lack of customer choice negates the consumer’s power to drive technological change.

“This is kind of a good-news, bad-news thing,” Kiesling says. “Getting the technology out there is the camel’s nose under the tent for a more vibrant, rich, rivalrous retail market where consumers can buy more interesting products and services around electricity. In the short run at least, utilities will have more of a lock on the retail market than is beneficial for consumers.”

But that’s just the short term. In the long run, the real key that unlocks the potential of home energy management might come from outside the utility industry or the consumer’s home. Specifically, it might come from the consumer’s garage.

“The plug in electric vehicle (PEV) has the potential to be our killer app, to be our cell phone,” Kiesling says.

By its very nature, the PEV turns the consumer into a vendor. Once the end-user has power to sell as well as buy electricity, the Prius Effect could gain new meaning for utilities, and the legacy market design could be turned on its ear.

“Utilities are thinking about this with blinders on,” she says. “They say, ‘Oh, we’ll offer a special rate for overnight charging.’” But a minor tweak to a regulated tariff isn’t a properly functioning market, Kiesling says, and it won’t be tolerated by customers who bring their own experience of the nexus of technology and commerce to the table.

“The younger generation of consumers, the people who have grown up buying and selling on craigslist and eBay, aren’t going to stand for that,” she says. “I’m waiting for the revolution to start. It’s been slow in coming, but I think the PEV is going to catalyze it. It will enable consumers to do the end run around the utility.”