Navigant Research Blog

Smart Thermostats Helping To Grow Home Energy Management Market

— July 31, 2015

Home energy management has come a long way in recent years, and smart thermostats have been a significant portion of its increasing technology adoption.  Nest, ecobee, and Honeywell (to name a few) have created iconic and effective tools that have proven results for regulating the amount of energy used to heat and cool homes and small commercial spaces.  Some would suggest that these devices are well on their way to being adopted as mainstream (and not niche) tools for home energy management.

According to a market research report released this month by Parks Associates, the market for smart thermostats is expected to have composed 40% of total thermostat sales in the United States in 2015, which is estimated at around 10 million devices annually.  In 2017, greater than 50% of all thermostats will be smart thermostats.

According to the report, the majority of these devices sold will be via the retail channel, although significant numbers will also occur through HVAC contractor, Home Security/Automation, and Utility channels.

Assuming a mix of devices priced between $150-$250, with cost declining slightly year over year, and relatively linear growth in the overall market, this could mean a $1 billion to $1.3 billion opportunity in the United States alone.  No small figure.

Smart Thermostat Unit Sales, United States: 2013-2017

Smart Thermostats

(Source: Parks Associates)

Making a Case

Parks’ breakdown of the multiple sales channels show that retail is by far the fastest-growing channel, followed by HVAC. The chart also shows that utilities and home security/automation channels are expected to experience less upfront growth in the near-term.

This distinction between channels is helpful, but quite possibly one of the most interesting aspects of the smart thermostat market has been the overlapping of sales channels that has occurred recently.  Through Bring Your Own Thermostat (or BYOT) programs, utilities are looking at how they can decrease overall program costs, mitigate risk, and increase consumer choice by networking consumers’ pre-purchased devices into their demand response and energy efficiency programs.

Similarly, in Spring 2015, Commonwealth Edison (ComEd) incentivized Comcast Xfinity Home customers to sign up for Comcast’s Summer Energy Management Program, managed by EcoFactor (ComEd also incentivized Nest owners to sign up for that company’s Rush Hour Rewards demand response program).

As vendors in this market show no signs of decreasing their level of creativity in marketing these devices to consumers across different geographies and demographics, the market will continue to evolve.  In terms of overall home energy management, smart thermostats are just the beginning.  The recently published Navigant Research Leaderboard Report: Smart Thermostats provides a comprehensive overview of leading vendors, recent market activity, and both current and forward-looking market trends.

 

Water, Water Everywhere—But Not a Drop to Drink

— July 31, 2015

Floating islands are the stuff of fantasy novels, Kevin Costner movies, and Final Fantasy VI. They can also occur in nature, as a conglomeration of aquatic plants, mud, and peat. With current predictions by climate scientist James Hansen that the sea level will rise at least 10 feet in the next 50 years, living on floating islands might become a necessity sooner than we think.

Fortunately, manmade floating cities are becoming as vogue as tiny houses.  In fact, outside of Kampala, Uganda, a group of 10 artists have taken up chic residence on a chunk of land that broke away from the mainland and is floating around Lake Victoria. The artists have everything they could want—constantly changing scenery, serenity, grass huts, a fresh supply of lake water, and even some fairly soggy garden beds.

Not a Drop to Drink

When floating islands are in a lake, it’s easy to rig up a filter or a simple chlorination system to make water potable. But water supply is an extraordinary issue when living at sea. The Seasteading Institute, in partnership with the Netherlands’ DeltaSync, recently ended a contest for architectural designs of modular floating islands. Participants were encouraged to consider sources of energy, but the contest did not require a water treatment center. Unless the island is connected to a mainland water source, though, on-island treatment systems are necessary. Some private companies have already developed solutions to this salty problem. On a $6.5 million private floating island (really more of a yacht) made by the Austrian company, Orsos, water supply is guaranteed through an onboard reverse osmosis desalination system. But with current high energy demands of traditional desalination plants, and the high price of this private island, this doesn’t seem likely to be a sustainable solution.

Enter the DESalting Island on Renewable multi-Energy Supply, or DESIRES. DESIRES utilizes several renewable energy sources (eolian, solar, tidal, wave, and hydrothermal gradient) and large storage reservoirs to produce salt-free, potable water at a cost of $0.88-$1.32 per cubic meter. Even the largest, most efficient desalination plants running on shore cost around $1.62 to produce a cubic meter of fresh water. Further, the DESIRES system has a small footprint—a module between 0.06 square km and 0.65 square km can produce enough water to supply a city of about 105 inhabitants. Further still, the system utilizes enhanced energy during storms to pump water, reducing its impact even further. However, the system is only in research phases right now. Real-world implementation could lead to more expensive and less efficient operation. In addition, the sheer number of renewable energy systems aboard the system could make the commercial capital cost quite prohibitive. Only time will tell whether the DESIRES system will be far more sustainable than traditional desalination technology.

But in the meantime, future denizens of the floating island rejoice!

 

Honeywell Steps into Smart Grid Fray with Elster Acquisition

— July 29, 2015

Honeywell’s purchase of smart meter maker Elster is a sign that the smart metering business still has some attractive runway for companies willing to endure the somewhat lengthy procurement process of utilities. The $5.1 billion deal gives Honeywell a solid global competitor for the next wave of smart grid investments.

The Deal

Honeywell is purchasing Elster from its current owner, Melrose Industries, a British investment firm that specializes in buying manufacturing businesses, turning them around, and selling them for a profit. In this case, Melrose did that after paying approximately $2.3 billion for Elster in 2012, suggesting a profit of nearly $3 billion. Melrose said it generated a 33% internal rate of return in the 3 years since acquiring Elster.

Here is what Honeywell is getting by purchasing Elster: a global manufacturer of gas, electricity, and water meters; communications equipment; and software solutions, including data analytics. It is also taking on about 6,800 employees of Elster, which is based in Mainz-Kastel, Germany. The company has operations in 39 countries, including the United States, the United Kingdom, and Slovakia. Honeywell is also taking on about $1.4 billion in pension liabilities.

Fits with Plans

While this move raises some eyebrows for its premium price, the acquisition fits with Honeywell’s stated plans last year that it would target some $10 billion to buy companies over the next 5 years. And while the smart meter business has slowed, particularly in the United States since federal stimulus money dried up, Elster has been active, picking up business in France as part of ERDF’s deployment of 35 million meters, and scoring a deal with CFE in Mexico earlier this year for about 300,000 meters. In addition, earlier this year, Elster launched an enhanced gird software platform called Connexo that integrates utility workflows, business processes, and grid data from multiple devices and vendors into a unified solution. According to Honeywell, Elster is attractive for several reasons: its high- and low-temperature burner products and residential heating components complement Honeywell’s existing business within its Environmental Combustion and Controls group; Elster’s presence in high-growth regions aligns with Honeywell’s strategy; and the existing Elster customer base presents an opportunity to cross-sell legacy products.

For Elster and its employees, the deal makes sense. Honeywell already has some synergies in the gas sector, and is no stranger to the way the utility industry operates. Elster’s electricity and water businesses give Honeywell a broader set of technologies it can leverage as those sectors grow in ways different from gas. Nonetheless, Honeywell will be facing some experienced meter manufacturers. Companies like Landis+Gyr, Itron, and General Electric are formidable global players, not to mention lesser known Chinese manufacturers, such as Holley Metering, that want to move beyond their domestic markets.  By acquiring Elster, Honeywell has the vehicle to be competitive now, and with skill can stay among the leaders as the market evolves.

 

Cybersecurity for Self-Driving Cars Needs a Confidence Boost

— July 29, 2015

Highly detailed and accurate mapping data will be critical to the technical success of future autonomous vehicles. However, in order for consumers and regulators to accept vehicles that pilot themselves to a desired destination, they will need to have a great deal of trust in the technology. That trust is currently in serious danger of being eroded by an ongoing series of computer network attacks, including one demonstrated recently on Wired.com. The need to bolster automotive cybersecurity is one of the factors driving Mercedes-Benz, Audi, and BMW to jointly acquire Nokia’s Here mapping division.

Nokia was an early leader in the field of bringing high quality maps to mobile devices with its 2007 acquisition of Navteq, but the world of mobile cartography has shifted dramatically since then. With mapping apps from Google and Apple joining incumbents such as TomTom and Garmin, along with the rapid development of autonomous driving capabilities, the expectations for map data has increased exponentially. Cartographic data needs to be kept continuously updated through fleets of camera and sensor-equipped vehicles, in addition to crowd sourcing for real-time information. Unlike traditional automotive navigation systems that might get updated annually at best, this fresh data will need to be pushed to automated vehicles as soon as it’s ready.

The big three German premium brands are all expected to be on the leading edge of introducing level 2 automation capabilities and are likely to ramp up automation as soon as  technology and the market allows. Navigant Research’s Autonomous Vehicles report projects that nearly 50 million vehicles with some form of autonomous capability will be sold globally by 2030. One of the key drivers for the move to automation is the desire to reduce accidents to near zero by taking humans out of the driving control loop.

Gaining Trust

Before that can happen, everyone will need a much higher degree of confidence in the security the software and electronic systems, something that is getting more difficult by the day. For several years now, computer security researchers have been demonstrating increasingly sophisticated cyber attacks against vehicles, with the most recent coming from Charlie Miller and Chris Valasek. Miller and Valasek were able to remotely take control of a 2014 Jeep Cherokee through its telematics system, manipulate the audio system, wipers, steering, and even shut down the engine as it was driven by Wired reporter Andy Greenberg. These attacks are not trivial and are not yet widespread, but as we’ve seen from recent attacks against the U.S. Office of Personnel Management and retailers such as Target and Home Depot, the more attackers learn about the systems, the more attack vectors they find.

Automakers are hiring some of these same security researchers and creating teams solely focused on securing their in-vehicle networks. When automakers outsource control systems or data such as maps to suppliers, they often get only a black box that they can hook into without access to source code. Recognizing that they will be increasingly liable for the performance of advanced systems, they are now bringing some of the work back in-house where they can control it. Daimler AG CEO Dieter Zetsche recently acknowledged that security concerns were one of the reasons his company was partnering with its chief rivals to purchase Here maps. Similar concerns have prevented numerous automakers that have been approached by Google from adopting its autonomous driving software and developing their own code instead. Unless Google is willing to give up control of its software to automakers, it may only get adopted by lower tier companies without the resources to develop their own autonomous systems.

 

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