Navigant Research Blog

Opower IPO Signals Growing Market for Energy Management Tools

— April 22, 2014

Cloud-based energy software provider Opower intends to raise up to $115 million in its upcoming initial public offering (IPO).  The company plans to sell 6.1 million shares at a price range of $17 to $19 per share, giving it an initial market cap of about $854 million.

Opower 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.

 

The Link between Home Ownership and Energy Efficiency

— April 16, 2014

The world’s population, and how that population is housed, is undergoing a rapid transformation. Urbanization and its impact on sustainability have been well studied in recent years. Indeed, 70% of the world’s population may live in cities by the second half of the century, but will they rent or own – and how will that affect energy efficiency?

Home ownership rates, like urbanization, are undergoing broad changes. Unlike urbanization, the direction and magnitude of the changes in home ownership vary regionally. Nonetheless, the rate of home ownership is on a wild ride. In the United States, home ownership is at an 18-year low. Meanwhile, Germany, famed for its renting culture, is facing a property rush.

The ownership of a home should influence investment decisions in energy efficiency. Renters have little incentive to invest in lowering utility bills if the payback period is longer than the expected occupancy. Why would a renter install an LED light bulb that lasts for 20 years if he or she plans to move out in 2 years?  The value proposition of energy efficient investments is similarly poor for landlords.  For many improvements, such as better insulation and more efficient HVAC, the benefits are largely felt by tenants, but the cost is incurred by landlords.  In fact, data from the Energy Information Administration indicates that renters consume on average 33% more energy per square foot than homeowners do.  Home ownership has a profound impact on energy efficiency.

Household Energy Consumption, United States: 2009

Household Energy Consumption, United States: 2009

(Source: U.S. Department of Energy)

However, what about Germany? It is a country with a historically low ownership rate and a strong culture of renting, but it has been a beacon of innovation for home energy efficiency.  The first Passivhaus and the Passivhaus Institut are located in Germany, as is a house that generates enough electricity to meet its own needs and power a car.  Of course, ownership is only one factor.  Government regulation has played a large role in establishing Germany’s market for energy efficient homes.  In contrast, U.S. innovation in home energy efficiency is often driven by what homeowners want rather than what regulations dictate.  The Nest Learning Thermostat, for instance, was developed by Tony Fadell because he realized there was value in expanding the limited features of conventional thermostats.  As fewer Americans and more Germans buy houses, it will be interesting to see how dynamics in innovation shift. After all, property ownership does change your world view.

 

Solar Market for Base of Pyramid Not So Pico

— April 14, 2014

In an upcoming report on pico solar lighting products (<10W) and solar home systems (<200W) sold primarily to rural communities in Africa and Asia, I cover the unit sales, revenue, and capacity of these small solar photovoltaic systems globally.  One of the most important trends covered in the report is that pico solar has transitioned from a humanitarian aspiration to big business – more than $100 million in 2014.  Corporate involvement in rural electrification has traditionally come in the form of corporate social responsibility initiatives, but real money is now flowing to solar companies serving the base of the pyramid market.  The success of a number of off-grid solar lighting companies and social enterprises has attracted interest from major corporations such as Panasonic, Schneider Electric, and Philips, as well as funding from investors.  Some of the more notable investments include:

  • In early 2014, d.light raised $11 million in Series C funding from DFJ, Omidyar Network, Nexus India Capital, Gray Ghost Ventures, Acumen Fund, and Garage Technology Ventures.  The company is one of the leading pico solar manufacturers, and has now raised $40 million and sold an estimated 6 million pico solar systems reaching 30 million people.
  • In early 2014, Persistent Energy Partners acquired Impact Energies, a pay-as-you-go, off-grid solar service provider working in West Africa that has reached 30,000 customers since 2011.  The renamed company, Persistent Energy Ghana, installs village solar microgrids and solar home systems.
  • In late 2013, Khosla Impact invested $1.8 million in a Series A round with BBOXX, a U.K.-based company that sells portable solar kits ranging from 7W to 185W and plug-and-play solar systems that range between 2 kW and 4 kW.  The company also provides a mobile pay-as-you-go service enabled by remote battery monitoring, which was the primary interest of Khosla.
  • In 2012, Greenlight Planet, one of the leading designers and distributors of solar light-emitting diode home lights, raised $4 million from Bamboo Finance and Dr. P.K. Sinha, co-founder of ZS Associates.  The investment followed previous financing by Dr. Sinha.  Greenlight Planet has sold more than 1.8 million solar lamps since the company was founded in 2008.
  • In 2012, Barefoot Power, one of the largest pico solar manufacturers, raised $5.3 million from three social investment funds (d.o.b. Foundation, ennovent, and Insitor Fund), existing shareholders (The Grace Foundation and Oikocredit Ecumenical Development Cooperative), and a number of private angel investors.

The full report will be released in the next few weeks.  It will discuss industry market drivers and challenges, and includes more than 20 company profiles and country-specific forecasts from 2014 to 2024.

 

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.

 

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