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.
Tags: Digital Utility Strategies, Energy Efficiency, Energy Management, Home Energy Management, Smart Utilities Program
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