Traditionally, when someone buys a house, they receive a card from their realtor that says, “Thanks for your business,” and a gift basket with some thoughtful housewarming gifts.  Now, thanks to new zoning codes in Lancaster, California, new homebuyers will also receive a brand-new solar photovoltaic (PV) system (though “receive” is probably a misnomer, as the cost of the system is presumably built into the home price).

Lancaster changed its zoning code in March 2013 to require a 1.0 to 1.5 kW PV system for every new home built on lots larger than 7,000 square feet or 1.5 kW systems for rural homes up to 100,000 square feet.  Builders will also have the option of building distributed systems for new developments.  For example, a builder could install a single 20 kW system for a 20-home development.  (Note that Sebastopol became the second California city to enact a solar requirement for new homes in May.)

Lancaster is the first city in the United States to require PV systems for new residential construction.  This regulation marks a significant win for solar companies, the renewable energy industry, and the state of California.  The advantages for the PV industry are obvious: the regulation will drive the market as new homes are built, creating revenue and jobs.  Widespread installations will also improve installation techniques and develop a base of skilled installers.  For California, this change will help relieve an already stressed electric grid that funnels power from the northwest to southern California (Lancaster is about 65 miles north of Los Angeles).

National Impact

Extrapolating numbers across the United States paints an even more ambitious picture.  The National Association of Home Builders forecasts that 647,000 new homes will be built (or at least started) nationwide in 2013.  Imagine that each of these homes comes with a 1.0 kW PV system installed; by the end of 2013, we would have a new 647 MW power plant distributed across the country.  It’s not quite that simple, but the point is this: a seemingly innocuous zoning change like Lancaster’s could have a tremendous impact once it scales across the country.

Furthermore, this would mean more good news for a growing North American PV market.  Navigant Research’s report, Distributed Solar Energy Generation, forecasts that 220 GW of distributed solar PV will be installed worldwide from 2013 to 2018, representing $540.3 billion in revenue, but the majority of that growth will come from Europe.  Extrapolating again, adding 647 MW of PV capacity each year in the United States would increase distributed PV capacity by approximately 15% to 20%.

Builders Object

Of course, there are numerous hurdles standing in the way of widespread adoption of anything similar to Lancaster’s zoning laws, and not everyone is applauding this move.  While there has been relatively little opposition from Lancaster residents, the homebuilders clearly object to the new codes.  Specifically, they feel that this change puts their product at a disadvantage when compared to the resale market.  Regardless, it will be interesting to see if other cities follow suit, making the new regulation a boon for the PV industry, or if Lancaster and Sebastopol prove exceptions in an already growing market.

Nest Labs, maker of the Nest learning thermostat, wants to shake up the residential demand response (DR) market.  Nest is taking a three-pronged approach to drive adoption of residential DR services and, of course, sell more of its thermostats:

• Naming:  First, Nest is not describing its services as demand response, a utility industry term lost on most consumers.  Instead, its DR program is called “Rush Hour Rewards.”  It’s an opt-in procedure whereby customers agree to have their Nest thermostats adjusted automatically during times of peak usage – for example, on a hot summer afternoon when AC usage spikes.  Customers can override the auto-settings whenever they choose.  By naming DR something else, Nest aims to highlight the consumer benefits and ease of use, and shift away from a utility focus.
• Utility partners: Nest has formed key partnerships with major U.S. utilities that will offer Rush Hour Rewards and related services, including NRG Energy subsidiaries Reliant and Green Mountain Energy, National Grid, Austin Energy, and Southern California Edison.  Combined, these utilities provide service to some 12.3 million customers.
• Pricing: Finally, Nest and its utility partners have developed aggressive pricing schemes designed to drive adoption.  Rush Hour Rewards participants can earn $20 to $60 per season, depending on their energy provider and other factors.  Also, there are substantial rebates on the Nest thermostat itself, which is pricey otherwise; for instance, National Grid is offering a $100 instant rebate on a Nest thermostat purchased through its website, lowering the cost to $149; and Green Mountain Energy customers who sign up for its Pollution Free Efficient plan receive a Nest thermostat for free.

A related Nest service, called Seasonal Savings, is a program in which the Nest thermostat and its cloud-based calculating engine (called Auto-Tune, like the audio processor) combine to make slight temperature adjustments early in the heating or cooling season.  These fine-tuning adjustments take place automatically in the background, but they can also be overridden by the user.  Nest’s own studies show Seasonal Savings participants can reduce energy use by 5% to 10%, with 80% of trial members opting to keep the suggested schedules.

Can Nest and its utility partners move the needle on residential DR with these new offerings?  Navigant Research’s consumer survey data suggests it is possible, but there will be resistance.  Nearly half of the respondents in our most recent study say they are unwilling to give up thermostat control to their utility (49%), and only about one in five (23%) are prepared to do so.  The challenge will be in convincing enough of the willing to actually go along.  For many people this is completely new customer behavior.  For Nest and its partners to find success, they will need to spend time and money on a sustained marketing campaign that explains the customer benefits.

Willingness to Allow a Utility to Control Thermostat, United States: 2012

(Source: Navigant Research)

Subsidizing the price for the high-end hardware in exchange for some DR should sway some customers.  Another plus is having utilities endorse the product and support the related user-friendly services.  Customers may grumble about their energy utility, but they still view energy providers as a valued source of energy management options such as these.  In addition, the marketing muscle the utility partners provide is a key asset.  As a startup, Nest’s marketing has been good so far in reaching early adopters.  With deeper-pocketed utility partners along, the ability to reach reluctant mainstream users should be quicker and more sustained.

Competitors are not standing still.  Rivals like Honeywell and Carrier are likely to develop competing products and services, and will be looking to set up similar partnership deals with utilities if the Nest scheme proves fruitful.  Other startups in the DR-energy management space, such as EcoFactor, Opower, Tendril, and EnergyHub, have compelling products, as well.  Still, credit Nest for driving innovative outreach to give this segment some fresh momentum.

Utilities expect smart grid technologies to help them in three key areas:  grid efficiency, financial management, and customer engagement.  Of the three, customer engagement gets by far the least attention in the media.  But as often happens, what we read in the papers is merely the tip of utilities’ project iceberg.  At the ElsterConnect conference in San Antonio, I saw an impressive example of enriched customer engagement.  The keynote speaker was Michael Lowe, chief customer executive at Salt River Project (SRP).

Chief what, you ask?  Already you’ve sensed the problem – many utilities don’t rate their customers highly enough to give them their own chief executive.  That was the first hint that SRP is going about things differently.

Mr. Lowe declared that every customer interaction with SRP must be rewarding, easy, and pleasant.  Those three words were on the screen in what looked like 1,000-point font throughout much of his remarks.  SRP’s goal is that 90% of its calls are answered within 30 seconds, and they have set no limit on how long a customer call can last – the company doesn’t even collect that data.  That is pure heresy to classic call center management but pure bliss to SRP customers.

We Guarantee It

SRP says it hires its customer service agents for attitude in a hiring process that’s described as speed dating.  The underlying concept is that happy employees will yield happy customers, and successful current employees are the best judge of who will make great future employees.

SRP’s goal is to make energy tangible to their customers, to get the customers to think about it.  That means giving them enough information, in ways that are easy to receive and digest.  The most popular page on SRP’s website is the daily usage graph, which each customer can access for their own account.  Customers can get a weekly SMS text message showing their anticipated monthly bill, given current usage.  Customers can pay their bill via phone call, text message, at hundreds of kiosks in the Phoenix metropolitan area, or by U.S. mail.  Only 20% are paying via post now.  Meanwhile, giving more information to customers online has reduced phone contacts by 28%.

SRP also offers time-of-use billing through their EZ-3 program, to shift usage away from the 3 p.m. to 6 p.m. peak demand period.  So far, 20% of its customers have volunteered out 845,000 smart meters deployed.  The program includes a money-back guarantee: If TOU billing doesn’t lower a customer’s bill, then SRP refunds the difference and returns the customer to single-rate billing.

Finally, 15% of SRP’s customers use prepaid plans.  Doing the math, that is about 125,000 prepay customers – the largest prepay program in North America and far beyond any definition of a pilot.  Prepay users reduce their monthly energy bills by 12% on average, thanks to the discipline required by prepay plans.  Improving service, apparently, carries benefits for the utility and for its customers.

Smart thermostats garnered a lot of energy industry and media attention in 2012 and will likely continue to do so as the market continues to grow (for example, a recent GigaOM article claims Nest is shipping 40,000 to 50,000 thermostats each month).  While the energy industry tries to figure out a) what smart thermostats are capable of and b) if consumers will pay to swap out their “dumb” thermostats, it’s clear these devices have the potential to help create more efficient homes by enabling consumers to adjust their energy use.  Still, some consumers continue to debate whether smart thermostats can actually save energy.  Thus, it’s a good time to review that ways in which thermostat setbacks can save energy.

Thermostat setbacks are defined as setting a thermostat at a lower – or higher, depending on the season – temperature than normal so the HVAC system will run less often.  Typically, setbacks are deployed when less heating or cooling is needed, i.e., during the day when occupants are at work, or at night when occupants are sleeping.  The common misconception around setbacks is that the extra energy needed to recover the original temperature nullifies the energy saved by using the setback, and can even raise energy bills.  The fact is, that’s not how setback savings works.

How It Works

The savings from temperature setbacks are directly related to the amount of time spent at the lower temperature setpoint (or, in summer, a higher setpoint).  The energy savings accrued while the indoor temperature falls (or rises) is approximately equal to the additional energy needed to bring the indoor temperature back to the original setpoint.  Since those two conditions cancel out, the measurable savings amass during the time spent at the lower setpoint.

Let’s look at a specific example in the winter.  Consider a thermostat using a comfort setting of 70°F while the home is occupied and a setback setting of 62°F while the home is unoccupied.  At 9 a.m., the thermostat lowers the indoor temperature from 70°F to 62°F.  At 5 p.m., the thermostat brings the home back to 70°F.

The savings accumulate during the 8-hour span while the home is at 62°F; again, the assumption is that the energy saved while the house dropped from 70°F to 62°F equals the energy required to bring the house back to 70°F.

Some argue about setback savings because they don’t agree with that key assumption.  Variables like a home’s physical characteristics (envelope, insulation, solar heat gain, etc.) as well as the HVAC system’s efficiency all help determine the effectiveness of setback savings.  In general, the older a home and/or its HVAC equipment, the more likely efficiency losses are present, especially while the HVAC system recovers from a setback.

However, it’s worth pointing out that the HVAC system doesn’t work harder per se to recover the original temperature; the system just cycles longer.  As North Dakota State University’s (NDSU) “Thermostat Setbacks Do Pay Off” article puts it, “It is not like the throttle on your favorite automobile, where the harder you push, the harder the motor works.  Heating systems are simply on or off.”

Still don’t believe the savings setbacks are selling?  Feel free to comment below to provide your arguments.