Navigant Research Blog

ZNE Gets a Boost on Two Fronts

— June 24, 2016

Home Energy ManagementThe zero net energy (ZNE) movement has taken steps forward recently in an effort to drive wider adoption of the related technologies. A ZNE building combines energy efficiency and onsite renewable power generation to produce roughly as much energy as it uses during a year. The focal point for much of the ZNE activity in the United States is California, where state regulations call for all new homes to be built as ZNE by 2020 and the same for all new commercial buildings by 2030. It comes as no surprise, then, that the latest ZNE efforts are in the Golden State.

Public Awareness

One step forward to wider adoption was taken by Pacific Gas and Electric (PG&E). The utility has opened a full-sized ZNE display home at its new regional office in Stockton, California. Visitors can see in detail how such a home can work in an effort to drive greater public awareness. The displays have many interactive components, such as an iPad-based augmented reality virtual tour using iBeacon technology that automatically presents relevant content in each room. Interactive components also include a 7-foot, high-resolution touchscreen that compares ZNE conservation methods with those of a typical home built in 2005 and an integrated content management and hardware system that drives the experience.

Virtual Tour of a ZNE Display Home in Stockton, California

ZNE Gets a Boost on Two Fronts_NS Blog

(Sources: Leviathan, Pacific Gas and Electric) 

Industrial Education

Another step to drive greater adoption was the dedication of the United States’ largest net zero plus commercial building retrofit in the Los Angeles area. The 144,000-square-foot Net Zero Plus Electric Training Institute (NZP-ETI) facility serves as a showcase for how commercial ZNE buildings can be designed, constructed, and operated. One of its unique features is its ability to go beyond net zero, generating about 1.25 times more energy than it consumes in a typical year. The excess energy, which is generated from an onsite solar PV array, can be stored in onsite batteries or discharged back to the electric grid. During a grid outage, the stored excess energy can allow the facility to maintain operations for up to 72 hours. The facility also plays an educational role as the training hub for some 1,500 electrical apprentices, journeymen, and contractors who want to stay at the forefront of the electrical industry’s latest technologies.

These incremental yet important steps by PG&E and NZP-ETI represent the cutting edge of the ZNE trend, which was highlighted for the residential market in the recent Navigant Research report, Market Data: Zero Net Energy Homes. These are baby steps toward a time when ZNE buildings become more commonplace. While these are laudable efforts, it will require many more similar moves in other regions before ZNE goes from oddity to ordinary.

 

CPUC Passes Residential Rate Reform

— September 3, 2015

The recent California Public Utilities Commission decision (D.15-07-001) to alter the composition of residential electrical rates provides necessary reforms—despite suffering from poor public perceptions. While the changes reduce costs to high energy users and increase electric bills for early energy efficiency and solar adopters, they are a necessary correction to policies implemented over a decade ago during the California energy crisis and a step toward the sustainable growth of renewable energy.

Current Rate Structure

Prior to the energy crisis, the California utilities had two tiers of electric rates. Customers would pay a lower rate for each unit of energy until a baseline quantity was consumed and then a higher rate (only a 15%–20% increase over the base rate) for all additional energy. When utility revenue requirements increased significantly during the crisis, a law was passed to freeze lower rates in order to protect lower-income households from price volatility. Additional tiers were created, and increased revenue requirements were passed to the upper tiers so that the highest rate is now over 200% more than the lowest.

With high energy users paying significantly more than their cost of service, alternative options like residential solar are often in the customers’ financial interests. However, as long as the alternative costs are greater than the cost of service and less than the utility bill, individual incentives drive toward an outcome that is more expensive for the system as a whole. CPUC’s rate reform is an effort toward correcting the price signals while presenting a consistent bill to the customer and continuing to promote energy efficiency and distributed renewables development.

Components of Rate Changes

After consideration of several proposals, the utilities will return to a two-tier system with a 25% difference between high and low. The tier reduction will be implemented gradually from 2015 to 2018 to reduce rate shock to customers. A Super User Surcharge rate of 219% of the first tier rate will be charged for energy in excess of 400% of the baseline in order to maintain an incentive for conservation.

Rate Reform Comparison

Rate Reform Blog Graphic

                                           (Source: Navigant Research)

In the interest of aligning customer bills with system costs, the utilities are allowed to include a minimum bill of up to $10 per month. While residential rates blend energy and delivery costs into a single volumetric rate, the delivery costs are largely fixed and are based on customers’ maximum usage. Even if a customer’s net usage is near zero due to onsite generation, the grid is expected to be available on demand, and the minimum bill reflects this cost.

By 2019, customers will be moved to a default time-of-use (TOU) rate. Cost of service is greater when demand is high in the late afternoon and early evening, and lower overnight when demand is low. Charging customers commensurate with the system costs is expected to drive more efficient behavior. Utilities are required to begin developing pilot TOU tariffs immediately and deliver a final tariff in 2018 for implementation the following year.

Effects on Distributed Resource Economics

While these changes will reduce the incentive for the highest energy users to implement energy efficiency or rooftop solar, bringing the bottom tiers closer to the cost of service may allow for an overall increase in solar adoption. Similarly, customers already driven to solar by high utility rates may see a longer-than-expected payback period because of the flattened tiers. Despite the criticism for lowering costs for high energy users and increasing them for lower use households, the rate reform was a long delayed but necessary correction to support California’s energy policy goals.

 

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.

 

Big Tech Players Take Next Steps in the Smart IoT Home Space

— June 24, 2015

No matter what it’s called—the smart home, connected home, or Internet of Things (IoT) home—many companies are moving forward with a variety of products to enhance comfort, convenience, and energy efficiency in the home. In particular, tech giants Apple and Google (Nest) have generated significant buzz lately and are poised to remain driving forces as the market continues to evolve.

Apple, Google, and More

Apple’s vision for its HomeKit platform is starting to become more visible, with some of the first devices entering the market that can be controlled via Siri through iPhones, iPads, and Apple Watches, according to a recent story on the MacRumors website. When HomeKit was announced a year ago, it was more of a vision of the possible. But now companies like Lutron (smart lighting kit) and Insteon (home automation hub) are selling HomeKit-enabled products. In addition, ecobee (smart thermostat) and Elgato (Eve sensing system) are prepared to launch HomeKit-enabled devices in a matter of weeks. Other manufacturers are expected to follow suit.

Meanwhile, Google has forged ahead with its own platform with the announcement of Brillo, its IoT operating system based on Android. Brillo has a communication layer called Weave that is designed to enable IoT devices to talk to one another and the cloud. Weave will also be used by Nest and Nest ecosystem devices so they can interoperate. Brillo is expected to be available in the third quarter of this year, and Weave will be offered in the fourth quarter.

It is not just Apple and Google shaping the IoT and smart home space, however. Industry groups are active as well, aiming to set standards across multiple operating systems and network protocols. For instance, the AllSeen Alliance and the Open Interconnect Consortium (OIC) are two groups working on open-source standards for the IoT that will include the home as well as other industry verticals.

Multiyear Competition

A few things to remember in this chaotic space: It is still early days as the smart IoT home market takes shape and the players jockey for position. Also, this is a multiyear competition, with no clear winners at this point. It is easy to see Apple and Google setting the stage to dominate given their strong brands among consumers. But companies like Samsung, ADT, Bosch, Qualcomm, and Honeywell, to name just a few, see opportunities as well and are focusing on the growing market possibilities that are expected to eventually include billions of new devices and billions of dollars in potential revenue. What’s more, there is room for startups to emerge or new partnerships to form that take the market in a new direction. For instance, ComEd has joined with Comcast and Nest Labs for a demand response program involving smart thermostats. For some guidance on what lies ahead, Navigant Research has a new report called IoT (Internet of Things) for Residential Customers that discusses these issues and challenges facing stakeholders.

 

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