Navigant Research Blog

Opower IPO Signals Growing Market for Energy Management Tools

— April 22, 2014

In its April 4 initial public offering (IPO), cloud-based energy software provider Opower raised about $116 million, resulting in a market cap of approximately $1.2 billion.  The successful IPO culminates a 7-year march for Opower, which has built a solid reputation with dozens of utilities that are being driven by regulators to encourage residential customers to use electricity more efficiently.

Opower’s technology analyzes utility meter data and then sends residential customers regular reports showing how their energy use compares to their neighbors.  Typically, Opower has delivered residential savings in the 2% to 3.5% range.  Last year, the company rolled out a behavioral demand response (DR) program now used by Baltimore utility, Baltimore Gas and Electric (BGE).  Despite its growth, Opower is still not profitable.  In 2013, it generated nearly $89 million in revenue, up from almost $52 million in 2012, but lost a little more than $14 million, greater than its 2012 loss of $12.3 million.

Still Seeking Profits

Other companies in the same energy management arena as Opower have found traction, if not yet profits.  EcoFactor offers a software-as-a-service (SaaS) platform that Nevada utility NV Energy uses to help its residential customers become more energy efficient.  Using EcoFactor’s cloud-based platform and smart thermostats, NV Energy customers who participate in DR events have been able to reduce their air conditioning use by up to 12% and whole-house electric consumption by 6% for a full year.  EcoFactor also has a significant deal with cable operator Comcast, under which its platform powers a service that discovers the heating and cooling patterns of a home and makes automatic adjustments to a smart thermostat based on occupant temperature settings, real-time weather data, and the house’s thermal characteristics.

Similarly, thermostat maker Energate and networking platform provider Silver Spring Networks were chosen by OGE for its home energy management (HEM) strategy.  By deploying Energate’s thermostats and utilizing Silver Spring’s DR capabilities, OGE has successfully launched a service that enables participating residential customers to reduce electricity consumption and save an average of $191 during a summer cooling season.

Slow But Steady

Google energized the HEM space in January 2014 when it announced its acquisition of Nest Labs, maker of the popular, though pricey, learning thermostat.  The $3.2 billion deal, now complete, signaled that Google was ready to get back into HEM (Google dabbled in energy management with its PowerMeter project but shut it down in September 2011 when it failed to attract enough users).  This move helps validate the HEM market.

Despite the slow adoption of HEM programs, these recent market developments portend at least steady market growth in the near- to mid-term, as noted in Navigant Research’s recent report, Home Energy Management. To gain more insight about this trend, you can view the replay of our webinar, Home Energy Management – New Players, Technology Update, and Market Outlook.  To see it, click here.

 

Nest Faces Lawsuit over Alleged Thermostat Flaws

— March 31, 2014

Nest Labs faces a new lawsuit brought by a dissatisfied Maryland customer who claims the Nest thermostat that he purchased is defective since the faceplate heats up and inaccurately measures a room’s actual temperature.  The suit, which seeks class action status, asks for more than $5 million on behalf of other Nest buyers.

The lawsuit was filed by Justin Darisse of Gaithersburg, Maryland and alleges Nest “increases costs because Nest heats up, which causes Nest’s temperature reading to be from 2 to 10 degrees higher than the actual ambient temperature in the surrounding room.”  The suit also alleges the company violates warranty and consumer protection laws.  Darisse also noted in his suit that he would have kept his $30 Honeywell thermostat had he known the Nest device, which retails for $250, would not help lower his energy bill.

Not the First Suit

Nest Labs, which is now owned by Google after a January acquisition, has declined to comment on the suit.  Nest is no stranger to lawsuits, though. There is a pending suit with Honeywell over alleged patent infringement and another patent infringement suit brought by BRK, maker of First Alert smoke alarms, related to Nest’s introduction of its Protect smoke alarm.

While the merits of this latest lawsuit will be debated for some time, the truth is that Nest and parent Google will need to fight the negative perceptions this suit is likely to generate, especially if it does attain class action status.

Mixed Bag

There is no question a Nest thermostat provides some very cool features: it has Wi-Fi to connect with a mobile device, and it learns the patterns of people in a home and can make adjustments automatically.  But my own experience has been mixed.  I installed one in my home last year to control my natural gas furnace, and so far, I have used the same number of Btus over the past 7 months as in the same months the year before.  And the installation was not easy, requiring me to hire an installer to come in after I spent many hours on my own and with a Nest tech via phone to no avail.  Also, two friends have had issues with the Nest thermostat they purchased.  One said his energy bill increased after installing his Nest thermostat.  The other also had trouble installing it by himself and later got so fed up after a software update went bad that he had it replaced with a more standard thermostat.

Now it looks like Nest could have some explaining to do in court. More to come on this, I’m sure.  And for more on the market for smart devices for energy management in the home, please sign up for Navigant Research’s webinar, Home Energy Management, on Tuesday, April 1 at 2:00 p.m. EDT.  To register, click here.

 

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.

 

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