Embracing a Bottom-up Approach to Load Control Programs

by Andy Martin, EnergyHub

The explosion of communicating thermostats has created an opportunity for utilities to cost-effectively acquire new demand response assets. Installed by consumers, contractors, and cable and security companies, these thermostats offer the potential for utilities to lower demand response program costs and increase customer satisfaction.

Remote control thermostats are being installed in homes through many channels across North America. Advanced home security systems from companies such as Vivint Inc. include remote control thermostats. Cable companies and Internet service providers such as Verizon Communications Inc. and Comcast Corp. offer remote control thermostats as part of their home management packages. HVAC contractors can now install Wi-Fi thermostats as part of new or upgraded heating and cooling systems. Do-it-yourself homeowners purchase smart thermostats at retail from companies such as Radio Thermostat Co. of America and 3M. No matter the service provider or the installation path a customer chooses, chances are good that a remote control thermostat is available.

The overall market for nonutility, smart energy management devices is growing quickly. According to IMS Research, annual revenues for smart energy management devices deployed for the U.S. residential market via nonutility channels are expected to nearly double from an estimated $178 million in 2011 to more than $320 million in 2012. By 2017, this figure is projected to grow to more than $1.6 billion for smart versions of devices ranging from appliances to thermostats to electric vehicle chargers and photovoltaic systems.

“In addition to traditional utility distribution, a range of retail channels are developing alongside managed home control offerings from multiple service providers, most aimed at taking the home automation premise to the smartphone-savvy mass market,” said Lisa Arrowsmith, principal analyst with IHS.

Millions of residential load management endpoints have been installed in the U.S. as part of utility programs. According to the Federal Energy Regulatory Commission’s (FERC’s) 2010 Assessment of Demand Response and Advanced Metering report, there was 7.2 GW of peak-load reduction capacity among residential participants in utility-managed load control programs in 2010—roughly 6 million homes. In most of these programs, utilities purchase load control equipment from technology and equipment vendors and then manage the distribution and installation of the equipment in conjunction with their program management and installation services vendors. Utilities that deploy advanced metering infrastructure technology also have distributed smart control devices that take advantage of the capabilities these networks offer. According to FERC and the Pew Internet & American Life Project, however, the percentage of U.S. homes that have device-capable, two-way communicating smart meters installed remains substantially lower than the percentage of adults who have broadband Internet access at home, and broadband is the communications channel most commonly used by nonutility smart thermostats.

The primary disadvantage of traditional residential demand response programs is that utilities have to pay for everything, including hardware, installation and marketing costs. In many service territories, however, there is an installed base of remote control thermostats large enough to aggregate for operational demand response programs. With these thermostats already in people’s homes, utilities can pay only for the demand response capacity without capital expenditures on equipment. Utilities also can avoid the costs that come with in-home thermostat installations.

Marianne Hedin, senior research analyst for energy at Pike Research, said many utilities prefer to stay outside of customers’ homes—partly why load-switch programs have been so popular for demand response.

“We’re starting to see cable companies and other service providers interested in offering demand response programs to their customer base,” she said. “It’s another opportunity for them to serve the customer.”

Utilities that seek to use nonutility thermostats for demand response programs have three primary options: They can offer a peak-time rebate or other pay-for-performance incentive for thermostat owners; they can buy capacity directly from the service providers who manage large pools of thermostats; or they can offer a direct seasonal or annual incentive to end customers for enrolling their HVAC load.

As part of its Reduce Your Use program, San Diego Gas & Electric Co. (SDG&E) offered an enhanced rewards program for smart thermostat owners this past summer. Most SDG&E residential customers automatically earn 75 cents per kilowatt-hour saved from 11 a.m. to 6 p.m. on utility-designated Reduce Your Use days. Customers who purchased smart thermostats from approved vendors and who completed application forms, however, saved $1.25 per kilowatt-hour.

Voluntary peak-time reduction programs typically are designed around manual behavior changes on the part of customers, but enabling technology such as smart thermostats can automate such reductions. Both initial vendors for SDG&E’s enhanced rewards program, EnergyHub Inc. and Alarm.com, offer services to end customers to automatically adjust their thermostats for energy savings when SDG&E announces a Reduce Your Use day. More than 25 percent of EnergyHub’s eligible customers in SDG&E’s service territory activated at least one service related to the program, and 70 percent of those customers chose the automatic adjustment service, essentially self-enrolling in a demand response program.

For SDG&E, the program effectively helps customers have more awareness about their energy consumption and costs. SDG&E expects to have initial program results in early 2013, said Ted Reguly, the utility’s director of customer programs and assistance.

“SDG&E’s goal is to help customers be smarter about the way they use energy by offering tools and resources that can help them manage their electricity use,” Reguly said. “Our customers are now able to take advantage of advanced smart control devices in the home to help them save energy with the tools of their choice with additional incentives through our Reduce Your Use rewards.”

This past summer, CenterPoint Energy partnered with Earth Networks and EnergyHub on a demand response program for Houston-area Wi-Fi thermostat owners that produced 13.8 percent average energy savings through optimized thermostat setbacks and 1.2 kW of load shed per home, equivalent to running an air conditioner 75 percent less on the hottest days of the year. CenterPoint plans to continue the program in summer 2013.

Austin Energy is developing an ecosystem of demand response service providers through its Power Partner Thermostat Program. The utility is running a pilot from fall 2012 through winter 2013, and it expects full program rollout to begin in spring 2013. The program eventually will include vendors who serve customers directly (via online or physical retail), sell through HVAC contractors, or distribute equipment through service providers such as security companies and Internet service providers.

The program differs from the single top-down thermostat demand response structure Austin Energy has taken in the past and uses a bottom-up approach that reflects the changing electric utility industry, said Scott Jarman, interim director of energy efficiency services at Austin Energy.

“The residential utility business model has been based solely on the volume of kilowatt-hours sold,” Jarman said. “This is distinctly different than what utility customers want to buy from the utility, which is reliable and preferably green electric service.”

With these enrolled thermostats, Austin Energy has a new capacity resource for demand-side management. Customers will receive a rebate for enrolling in the Power Partner Thermostat Program, and vendors will receive a setup rebate for each customer enrollment, as well as an annual rebate for each customer who remains enrolled. Vendors will be able to promote the program and secure customer enrollments at the point of sale whether in a retail store or as part of an in-home service call.

“One of the benefits of a participating vendor model is that we are able to better integrate with our other customer programs,” Jarman said. “This facilitates one-stop sign-ups and cross-program promotion within Austin Energy.”

Many utilities continue to operate residential load management programs in which they purchase and distribute the control equipment, but SDG&E, CenterPoint Energy and Austin Energy are developing programs that take advantage of the installed base of remote control thermostats in their service territories.

The remote control thermostats customers have installed on their own or through contractors or service providers represent a new class of home energy efficiency devices that also is available for utilities’ load management needs. As this asset base continues to grow, fewer utilities will need to purchase, distribute and install load management devices on their own. Consumers get the devices and services they want, and utilities get satisfied customers and lower program costs for recruiting and maintaining a base of sheddable load.


Andy Martin is vice president of product and marketing at EnergyHub. He has overseen the launch of three generations of the company’s software and hardware systems for energy management. Reach him at martin@energyhub.com.

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