Thursday, April 18, 2013

Engaging consumers: Home Energy Management Solutions

Despite consumer interest in energy-saving solutions, selling products and services and engaging consumers in demand response programs continue to be challenges for service providers, utilities, and device manufacturers. Consumer energy-saving activities such as turning off unused lights and monitoring A/C usage peaked in 2010, and as the economy has slowly recovered, consumers' energy consciousness has diminished.

Parks Associates' Energy Management Devices: Engaging Consumers consumer project shows that consumers' energy-saving activities have remained flat from 2011 to 2012, much lower than the heights of 2010. Energy management solutions create value for consumers by providing them the means to reduce their energy consumption and the convenience to control connected devices in the home.

While consumers have high price sensitivity to energy-related solutions and are resistant to new monthly service fees, they are showing interest in individual connected home control components with a one-time purchase price. Parks Associates asked consumers about their interest in specific energy-related devices that they would be able to automate, monitor, and control through the Internet using a computer, mobile phone, or tablet. Results show that:

  • 44 percent of U.S. broadband households are willing to purchase a connected lighting control module for $39.99
  • 39 percent of U.S. broadband households are willing to purchase a connected thermostat for $129.99
  • 29 percent of U.S. broadband households are willing to purchase a connected energy reader for $99.99

Consumers appreciate the value of connected home systems and devices, but they don't want to constantly monitor their home's energy consumption.

Parks Associates finds 12 percent of U.S. broadband households have access to a website that shows their daily energy consumption patterns but nearly 90 percent use it less than once per week. Nearly 50 percent with a thermostat either have never programmed the device or done so only once, when it was installed. Cost savings is an important factor influencing consumer interest and adoption of energy solutions, but it is only one of many factors.

Nearly 50 percent of U.S. broadband households with a thermostat value a thermostat that can automatically detect an unoccupied house and adjust the temperature to save money. Over 25 percent of smart thermostat owners say it is too difficult to program their device—so it is rarely done.

Solutions that easily connect with popular devices, such as tablets and smartphones, can also find success in this early market.

For example, the Nest, a smart thermostat that is easy to install and use device and has an attractive and intuitive interface, currently accounts for over one-third of the smart thermostat market. Consumers can buy one at retail or through energy provider Reliant Energy.

In the long term, interoperability will be an issue with many of these early solutions as the market develops and more systems become connected.

Service Bundles for Home Systems

For service and security providers, consumer resistance to monthly service fees is a key obstacle to home system adoption. Roughly 15-40 percent of households are interested in new home management capabilities and systems are unwilling to pay monthly service fees to obtain them. Even among those willing to pay, price points vary widely.

Overall, consumers consistently rate safety features and equipment as the most important elements in a home management or security system, including detectors for smoke, carbon monoxide, gas leaks, and water leaks. When asked what capabilities would drive them to adopt a home security system, consumers put fire/smoke detector and carbon monoxide detector at the top of the list, with one-third of U.S. broadband households without a security system ready to adopt a system that offers one of these items.

Companies will have to diversify their offerings to target this market. Energy management has appeal but often ranks behind safety and security features, with no single "killer app" to drive the market. Automating energy management solutions and integrating them with other solutions, so that consumers have multiple service options, are necessary to speed up adoption from its currently slow, but steady, pace.

Utility Perspective

The utility channel in particular has struggled to bring new products and services into the mainstream. For example, demand response (DR) programs are designed to shift or reduce peak consumption, and people sign up for these programs with the best intentions. However, when the time comes for a DR event, consumers often manually override the thermostat set point changes. In many cases, the manual adjustments actually result in longer equipment runtimes.

Traditional energy management programs use economics as the primary consumer value proposition, i.e., the return on investment in the form of energy savings. However, Parks Associates lists cost savings as only one of multiple factors influential in this market.

  • PRICE SENSITIVE: Consumers are not naturally in the market for energy-saving devices, and they are notoriously price sensitive to energy-related solutions.
  • CLEAR VALUE: If the return on investment is not apparent or relatively sizeable, consumers simply will not pay for it.
  • SIMPLICITY: Consumers will not struggle to figure out a complicated solution.

Consumer awareness of energy programs continues to be low. Less than 20% of U.S. broadband households are aware of programs such as tiered pricing, time-of-use, and energy monitoring devices.

As real-time measurement and verification become a reality, utilities can transition away from demand side management programs to demand side management markets. In many new and emerging instances, the goal of the solution is to enable smart devices to make decisions on consumers' behalf, automating many processes and providing cost savings based on preprogrammed and learned factors.

Connected Devices and Data Analytics

The proliferation of IP devices, the Internet of Things, gives companies and consumers access to loads of data about the household, energy consumption, and the devices within, all of which can be used to develop these cost-saving steps. Manufacturers are adding new capabilities and features to differentiate their products, capabilities that can be applied to reduce energy consumptions and shift demand.

Consumers are starting to see the value in these offerings as well, especially in energy-intensive devices such as an air conditioner. Over 40 percent of U.S. broadband households rate an air conditioner with monitoring features as highly appealing. Appliances such as washers, dryers, and refrigerators with monitoring features capture the interest of at least one-third of consumers.

Adding connectivity to devices also creates mountains of data that can be mined and used to create new products and services. For example, energy modeling software can detect when an appliance is in disrepair. There is huge value in information, and many companies are finding ways to leverage that data to drive the next wave of energy management solutions. Connectivity not only brings convenience and control to the consumer, it also enables verification and measurement of any control action in near-real time. The ability to verify load shed in real time will change the way that utilities approach demand response programs.

Service Providers and Partnerships

Most telecom and cable operators are developing plans to launch services that include home control, security, and energy management.

In the U.S., Comcast, Time Warner, and AT&T have entered the market for home controls with a base package of services that requires a multiyear professionally monitored security contract. Consumers have access to a full suite of security and home controls products, including IP cameras, electronic door locks, connected lighting, and thermostat controls.

Verizon has chosen to provide self-monitoring services but not professionally monitored security. The starter hardware package includes a lighting module and an IP camera, and the monthly fee for self monitoring is $9.99, regardless of the number of connected devices and does not require a long-term contract. Verizon is targeting the market that does not have professionally monitored security but does value monitoring the safety and security of their home and family, as well as the lifestyle improvements from home controls.

In Europe, Telefonica has announced its M2M solution, which will be launching in 2013 in Spain and portions of South America. Deutsche Telekom will also launch services in 2013, and the majority of telecom and cable operators will enter the market in 2014.

Verizon's pricing structure is highly competitive, targeting the mass market. Pricing structures have yet to be announced in Europe, but pricing in the range of Verizon's home monitoring and controls solution has the ability to expand the market. Parks Associates research indicates this type approach, with an emphasis on safety along with new capabilities through IP, does have the potential to expand the market for home security and other connected home services.

In contrast, the utility business model is focused on demand-response programs that reduce overall consumption or impact peak load. There are many compelling business opportunities in accomplishing this goal. The collaboration between SDG&E and Alarm.com is an example where a utility leverages a connected device already within its territory to drive this change.

In general, the marketing muscle of security and broadband service providers is helping to grow awareness of consumer-facing solutions in home monitoring and control, which are in the early stages of product deployment and consumer awareness. For example, 16 percent of U.S. broadband households report having automatic lighting controls; however, when drilling down into those numbers, the majority of those products are dimmer controls or automatic timers.

The industry will need to continue to develop partnerships to deploy new services, show value to the consumer, and provide costs savings. Energy management systems have hardware and software components, so there are a variety of partnership options between service providers, retailers, OEMs, and companies in the utility, security, and home control industries.

Hardware components include in-home displays, load monitors, load controls, lighting controls, and thermostats. Hardware revenues may come from multiple channels, including retailers such as Best Buy, Home Depot, and Lowe's.

The software components include cloud services that may perform services such as data analysis, alerts, or notifications, or connectivity to user interfaces such as smartphones or tablets. These efforts will also create the foundation for future advances in energy management systems.This market will continue to evolve, and systems will expand to include a variety of advanced offerings, including:

  • Management in dynamic pricing environments
  • Equipment performance monitoring and diagnosis of HVAC systems and major appliances
  • Management of home-based renewable power generation systems
  • Electric vehicle management, including charging in dynamic pricing environments.

These solutions will further expand the market and create new opportunities for recurring revenues.The market for advanced energy services has been slow to develop, but consumer interest in connected offerings combined with growth in IP-enabled, real-time offerings will provide an avenue for companies with the right service options to thrive long-term in this market.

From the article, "Engaging consumers: Home Energy Management Solutions" by Tom Kerber.  

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