Navigant Research Blog

British Gas-AlertMe Deal Signals More Home Energy Consolidation

— March 11, 2015

British Gas’ recent acquisition of AlertMe, a London-based provider of energy and home automation services, signals that home energy management and connected home technologies continue to attract significant investments. Utilities and others are seeking to provide consumers with new tools to more efficiently control energy usage and automate their homes.

The deal brings AlertMe fully under the control of British Gas, a subsidiary of Centrica, the leading energy service company in the United Kingdom. Prior to the acquisition, valued at about $68 million, British Gas was already using AlertMe’s platform. It had also been a strategic investor in AlertMe since 2010, owning about 20% of the company. British Gas leverages AlertMe’s technology for Hive, a service that enables the utility’s customers to control their home’s heating and hot water systems remotely using a smartphone, tablet, or web browser.

AlertMe was attractive to British Gas because its products and data services are used in 500,000 homes. What’s more, the platform is interoperable, able to connect disparate devices like thermostats or door locks made by different manufacturers. And AlertMe supports a range of networking protocols, including Z-Wave, ZigBee, Wi-Fi, and cellular, giving it flexibility.

Still a Crowd

The acquisition has implications in the U.S. market, as well. Home improvement retailer Lowe’s has used AlertMe technology as the underlying software platform for its Iris connected home service since 2012. AlertMe will continue to support Lowe’s and its Iris customers. Also, since British Gas’ parent Centrica owns Direct Energy, one of the largest residential energy retailers in North America, British Gas expects to offer the AlertMe technology and service to those customers as well.

In a wider context, this acquisition by British Gas underscores the increasing importance companies are placing on home energy management and the connected home. France-based utility GDF Suez recently invested $7.2 million in Tendril, a Colorado-based company specializing in cloud-based technology for personalized energy services. GDF Suez intends to use the Tendril technology for customers in Europe. In addition, solar panel manufacturer SunPower has invested in Tendril, committing $20 million to the company and agreeing to license Tendril’s technology. Similarly, Sunnyvale, California startup Bidgely, a firm specializing in energy customer engagement and analytics, has gained traction, winning new deals for its cloud-based technology with Texas-based utility TXU and Illinois-based ComEd.

Nonetheless, the energy management-connected home space is still quite crowded, with big non-utility players such as Google (Nest), AT&T (Digital Life), and Samsung (SmartThings) making plays and a number of smaller energy tech firms, such as EcoFactor, Ceiva, ecobee, and Tado, trying to compete as well. Consolidation is at hand, and we can expect to see similar deals as the market matures.

 

Thermostat Studies Show Benefits of Being Smart

— February 16, 2015

This month Nest announced several studies that have been conducted on its learning thermostat.  One was conducted by MyEnergy, a Nest subsidiary that analyzes residential energy information. The others were conducted by the Energy Trust of Oregon and by Vectren Corporation, an Indiana-based holding company. The results boost Nest’s claims that the thermostat can pay for itself in only a year or 2.

Across the studies, evaluators found average annual reductions in electricity use between 13.9% and 15% for cooling and 10% and 12% for heating loads.  For natural gas, the Vectren study confirmed an average annual reduction of 12.5%.  In terms of cost savings, Nest states that adopters showed an average of 9.6% savings on their gas bill and 17.5% on their electric bill.

Last year, competitors EnergyHub and EcoFactor released third-party studies that indicated reductions in electricity use of 6% to 17% after thermostats controlled by their back-end platform were installed in users’ homes.

The Limits of Studies

Smart thermostats have become increasingly numerous in recent years. According to Navigant Research’s report, Smart Thermostats, North American household penetration of these devices is expected to exceed 20% by 2023. Until recently the market was concentrated in warm weather states, but adoption across colder climates is becoming more common, and utilities are becoming interested in smart thermostats for year-round energy efficiency and demand response (DR) programs.

Regardless, the high prices—$150 to $300 for the device alone—are still a barrier. Hence, smart thermostat vendors have trumpeted third-party studies that indicate positive return on investment (ROI) through energy bill savings. Analyses of products from EcoFactor, EnergyHub, and now Nest indicates annual energy savings in the 8% to 15% range.

But such studies can be interpreted in several ways. The most obvious conclusion is that the chances of incurring similar savings are good given the variety in the studies’ methodology and sample populations. On the other hand, factors like the locations of households, weather varying, and simultaneous energy efficient behaviors all affect study results.

Your Results May Vary

For states where heating and cooling are a small part of the utility bill, the savings from a smart thermostat will look different than those in an area where the costs are high. In such cases the results could be misleading.

The MyEnergy study included households from all over the country in its sample, and Nest claims that it is fairly representative of their adoption base—but is that representative of U.S. consumers as a group? The average reported savings might not fall in the middle of the spectrum of all consumers, so someone using this information as a basis for purchase of the $250 device could be anywhere from greatly or slightly disappointed to slightly or very pleased depending on how similar they are to the majority observed that indicated decent savings.

And if the consumer doesn’t really care enough to break down this information in the first place, much less nitpick findings from a variety of disparate studies? These types of adopters might be drawn to purchase the device simply for its user delight qualities. Nest has created an iconic device that by most accounts works really well and that has a lot of informational features designed to trigger more energy efficient behavior. That would be a great outcome.

 

The Trouble with Trying to Reduce Residential Energy Consumption

— January 5, 2015

A recent story in The Wall Street Journal (subscription required) reminds us of the difficulty in trying to reduce energy consumption.  The story, by Jo Craven McGinty, notes that after 3 decades of effort aimed at lowering residential energy use in the United States, the overall level of consumption is still about the same, about 10 quadrillion BTUs per year.

Taking a deeper look, however, there is some positive news in the data.  While overall consumption is nearly unchanged, the average energy consumption per household has decreased, dropping to about 90 million BTUs a year in 2009 (latest year available) from about 114 million BTUs in 1980.

So, what is going on? Several things: newer homes tend to be larger than older ones.  And though they have more efficient envelopes and systems (double-pane windows, improved insulation, and efficient heating-cooling systems), it takes more energy to heat larger spaces, and the proliferation of devices in homes has required more energy use.  We now plug in more TVs, computers, DVRs, mobile phones, and second refrigerators.

The Efficiency Paradox

While our homes are more efficient, this is offset by an increase in energy consumption, a phenomenon called the rebound effect, or the Jevons Paradox, which holds that an increase in efficient use of a resource, like energy, can result in greater use and reduce the benefit.   This is not a hard and fast rule, and it is often debated among economists.  Nonetheless, there is a propensity toward squandering some efficiency gains once realized.  For example, when gas prices drop significantly, the cost per mile is lower, and people are more inclined to drive further or faster.

As McGinty points out, Americans receive mixed messages, being hectored to conserve energy while also being constantly invited to buy new gadgets and appliances that require energy.  This is evident in the U.S. Energy Information Administration data showing how consumption by type has changed.  In 1993, appliances, lighting, and electronics accounted for 24% of home consumption, which rose in 2009 to 34.6%.  Space heating was 53% of home energy consumption in 1993 and decreased to 41.5% in 2009.

Annual Residential Energy Consumption by End Use, U.S.: 2009

                               (Source: U.S. Energy Information Administration)

Helping to reduce residential consumption lies at the heart of home energy management systems and represents a key goal of utility energy efficiency programs.  No one is suggesting these efforts should stop just because the net result can seem frustratingly ineffective, or merely incremental.  But, as noted in Navigant Research’s report, Home Energy Management, one of the inhibitors to wider adoption is the uncertainty around net benefits.  Some argue that one way to avoid the rebound effect would be a tax to keep the cost of energy use the same.  But that would be a hard sell.

 

Big Retailers Boost Home Energy Management

— October 28, 2014

Home energy management solutions have struggled to gain traction beyond early adopters and consumers enrolled in a sprinkling of utility programs for demand response.  That could be changing as more retailers push connected home devices that have advanced energy controls as a component.

Best Buy, for example, has been selling a handful of smart home products for several years, and for a time it tested dedicated home energy management sections in three of its locations.  But now the electronics retailer plans to set up new connected home departments within about 400 of its 1,400 stores.  These new sections are expected to show up around Thanksgiving, and will be staffed with blue-shirted experts who will be trained to offer smart home solutions for homeowners.  Products on the energy side will include smart thermostats from Nest and Honeywell and smart lighting controls from Philips and Belkin, ranging in price from about $50 to $350.

Out on the Floor

Beyond hardware products, Best Buy will also highlight services for the connected home from a variety of providers, including Comcast, DirecTV, Time Warner, ADT, and others that can tie the hardware to services geared toward automation, security, and energy management.  This could be a key to wider adoption of home energy management, since many people have not heard much about energy management services.

Other retailers, such as Walmart, Lowe’s, and Home Depot, offer similar products and services for increased home automation, security, and energy management.  Office supply giant Staples now offers Connect, which combines a hub with a single mobile app to connect door locks, thermostats, and lighting for homeowners or small business owners.

One of the main inhibitors to growth for home energy management products and services has been a lack of awareness among consumers, as noted in Navigant Research’s Home Energy Management report.  This current wave of retailers promoting a variety of solutions to create a more intelligent home should help increase customer knowledge and drive adoption.  It will likely take a couple of more years to reach widespread consumer adoption, but this current retail push is a start.

 

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