Navigant Research Blog

In the Real World, Smart Grid Programs Proving Themselves

— March 4, 2014

Two utilities on two continents are demonstrating the value of the latest technologies for helping residential customers reduce energy consumption and lower their costs.  This is important because often the benefits of smart grid technology have gone unnoticed or under-reported while stories highlighting the negative aspects of smart grid deployments gain attention.

In the United Kingdom, British Gas says that 9 out of 10 customers report that smart meters have helped them better manage their energy consumption, according to a survey.  Results of the survey also show that 54% of respondents with a smart meter are saving money, in some cases up to £75 ($125) per year.  Also, data from smart meters has motivated 40% of customers to take some type of energy efficiency steps, such as adding insulation.  British Gas has deployed smart meters to about 1 million of its customers so far.  The mandated widespread deployment of smart meters is set to begin in the fall of 2015.

Low Overrides

Here in the United States, Nevada’s NV Energy says customers enrolled in its mPowered program reduced air conditioning use by 12% and whole-house electric consumption by about 6% per year.  Program participants receive an EcoFactor smart thermostat that connects the home’s AC system to a cloud-based efficiency and demand response (DR) service.  Participating households reduced their load by 3 kW to 3.5 kW in the first hour of DR events last year.  Customers can override a bump in temperature settings during a DR event if they want to not take part, keeping the home cooled at a level they prefer.  However, the rate of overrides has held steady at about 11% in the first hour and 7% in the second hour since the utility has been tracking this metric since 2008.

These examples represent the latest evidence of smart grid technologies making a difference to customers after years of utility deployments and somewhat murky results.  Pilot programs and eager vendor hype have indicated savings of up to 20% on a given customer’s bill.  These two examples are noteworthy for being more realistic.  They’ve been normalized over time and over a wider customer base – plus, they’re similar to results from OGE and BGE.  What’s missing are similar normalized results from dozens of utilities that are using smart grid technologies to create greater efficiencies and provide ways for customers to control costs.  Those results will eventually come, but until then, many customers will remain skeptical.

 

Growing in Tough HEM Sector, Opower Files for IPO

— February 19, 2014

News of Opower’s filing for an IPO comes as little surprise.  The privately held company hired investment bankers months ago, and speculation about going public dates back several years.  Nonetheless, it is worth noting what Opower has done right to survive what has been a rocky road for other companies navigating the home energy management (HEM) sector – and what the competition will look like.

Opower offers software-as-a-service (SaaS) to utilities to help customers reduce their energy consumption.  In essence, Opower combines customer data and behavioral analytics into tools that encourage residential customers to reduce their energy use in part by comparing their energy habits to those of their neighbors.

What’s noteworthy is how Opower has sustained measurable growth.  In 7 years, the company has gone from a small startup to employing more than 400 people.  It also counts more than 90 utilities as customers and its software connects with 22 million homes, most of them in the United States.  One of the keys to this growth has been Opower’s investment in research and development (R&D).  The company has invested some $25 million annually on R&D, which has enabled it to adapt to the changing needs of utility customers.  In its confidential IPO filing, the company is taking advantage of the Jumpstart Our Business Startups (JOBS) Act, which permits companies with less than $1 billion in revenue to begin the IPO process with the Securities and Exchange Commission (SEC) without having to divulge financial details.

Market Savvy

Another factor in Opower’s success has been the quality of its analytics.  The company’s methodology and the insights it provides get high marks from a variety of independent sources, including the American Council for an Energy-Efficient Economy (ACEEE), The Brattle Group, Navigant Research’s parent company Navigant Consulting, and public utility commissions (PUCs) across the United States.

What’s more, Opower has been a savvy marketer, promoting its wins and casting doubt on results from competing vendors.  For instance, the company makes a strong point of highlighting its randomized control trial (RCT) methodology to distance itself from the competition.

For these and other reasons, it was no surprise either that Opower topped Navigant Research’s recent study, Leaderboard Report: Home Energy Management, which ranked suppliers of HEM software.  But Opower cannot stand still.  Plenty of competitors are poised to challenge that company’s dominance.  Firms like Google (now in control of Nest Labs), Silver Spring Networks, EcoFactor, and C3 Energy will battle for market share in the coming quarters.  The IPO only means that the target on Opower’s back just got larger.

 

Drought-Plagued California Looks to Smart Water System

— February 4, 2014

In drought-stricken California, an effective approach for helping people curb their energy consumption has shown similar results in helping them reduce their use of water.  It could also be a forerunner of similar programs in other regions that suffer from chronic water scarcity.

The 1-year pilot was conducted among residents living within East Bay Municipal Utility District’s (EBMUD’s) service territory, which includes Oakland and its surrounding suburbs.  Results from an independent study showed that when participants received information comparing their water consumption to neighborhood averages, usage decreased by 5% on average.

The pilot employed a “behavioral water efficiency” approach that has been used by numerous U.S. electric utilities to encourage customers to reduce consumption.  Opower, for example, uses this behavioral-based approach for energy utilities.  In EBMUD’s case, the technology provider was WaterSmart Software, which applies analytics and behavioral science tools to crunch data and provide consumers with feedback information and tips for cutting consumption.

Perma-Drought

The 10,000 EBMUD residential customers involved in the pilot received easy-to-comprehend water use reports for their home and compared consumption to similar-sized homes in the nearby area.  There was a control group set up to make sure other factors, like weather or other customer behavior, did not affect the estimated water savings.  It should be noted that the East Bay pilot was the first large-scale implementation of this type of technology by an urban water utility.

The pilot was partially funded by the California Water Foundation, which concluded that this type of behavior-based water use report, if implemented by other water utilities in California, could help meet state requirements to shrink per-capita water use by 20% by 2020.  And with Governor Jerry Brown’s recent declaration of a state of emergency due to drought, wider implementation of this reporting approach could spread rather quickly.

The East Bay study shows that saving water by providing more granular, timely, and actionable consumption data is an approach that can work.  This solution is bound to be used elsewhere in the United States, especially the Southwest and other regions where drought is an ongoing threat.  In a larger context, the pilot strengthens the case for using data analytics to help drive greater efficiency in water systems, as noted in a previous blog and in Navigant Research’s report, Smart Water Networks.  This is not to say upgraded hardware such as smart water meters and leak detecting sensor aren’t helpful, too.  The best practice will be to integrate both big data and smarter equipment to bring greater efficiencies to water systems.

 

With Nest Buy, Google Reaches Deeper into Homes

— January 14, 2014

Google’s $3.2 billion acquisition of Nest Labs, maker of smart thermostats and smoke alarms (which I’ve written about previously), is an obvious move by the search giant to reach further into the home with Internet-connected gadgets that tie users to Google services beyond search and other online activities.  It is an Internet of Things (IoT) play, with safety (smoke alarm-carbon monoxide detector) and home energy management (thermostat) as the starting points.  (For a deeper dive into this market, see Navigant Research’s report, Home Energy Management).  And while this deal seems like a great match, there are risks and issues that need to be resolved.

The positives for both companies are clear.  The big cash infusion should give Nest the needed money to pay for expanded marketing efforts, move strategically into new markets outside North America, and hire talented engineers to continue developing disruptive products.  For Google, the company gets a big win on product design.  Nest devices have great design features, which are a testament to the capabilities of founders Tony Fadell and Matt Rogers, both of whom worked at Apple before starting Nest (and who will presumably become quite wealthy thanks to the deal with Google).  Nest has quickly established itself as the standard among connected thermostats, with distribution online, among retailers, and through some utilities.

Price and Privacy

One of the issues with Nest devices, however, is price, especially among mainstream consumers.  The Nest thermostat sells for $249, much more than typical thermostats, and the Protect smoke alarm retails for $129, again higher than prevailing products.  The Nest devices offer more than standard products, but getting past early adopters on price will now become a Google challenge.

Beyond price, installations don’t always go smoothly, and can require the buyer to hire a professional installer, which can add $200 or more to the purchase cost.  Also, a Nest thermostat software update in December 2013 caused some of the devices to go dark when it mattered most, as temperatures plummeted in the Northeast (as noted by my friend and former PC Magazine editor-in-chief Michael Miller).

There are also concerns about how Google will handle the user data supplied via Nest devices.  On January 9, France’s data protection watchdog, known as CNIL,  fined Google the maximum €150,000 ($205,000) for ignoring a three-month requirement to comply with local law regarding the tracking and storing of user information.  Similarly, Google’s previous foray into home energy management did not go so well.  The Google PowerMeter project, a free energy-monitoring tool, shut down in September 2011.  Nest brings real traction to Google in the HEM space, but could increase consumers’ wariness over privacy concerns.

I spoke with Matt Rogers last week while at CES, and he was clearly excited about Nest’s future.  Now, it’s clear why: He knew that future funding was not going to be a problem.  It helps to be acquired by the world’s second most valuable brand, but Google-Nest still faces some serious challenges, which rivals like Honeywell, among others, will be looking to exploit.

 

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