IoT Strategy

Utilities and the Smart Home: Integrating Smart Devices into Energy Programs

by Tom Kerber | Jul. 19, 2016

The smart home is evolving along many paths. Connected products and services are being sold through multiple channels, using different business models, and are all converging in the smart home. Consumers are gaining familiarity with smart home devices, which drives adoption. Parks Associates consumer research finds that in 3Q 2015, 18% of U.S. broadband households own a smart home device, many of which offer energy management capabilities and associated value-added services.

Smart energy devices include smart thermostats, smart lightbulbs, smart plugs/adapter modules, smart in-wall outlets, and smart power strips. Ownership of all smart home products, as well as the number of products owned per household, will continue to increase as over 40% of U.S. broadband households plan to buy at least one of these devices in the next 12 months, and both owners and intenders show interest in energy management capabilities. U.S. consumers are increasingly aware of the value of reducing home energy use, which provides a great opportunity for the industry.

As more smart devices with energy management features enter the home, utilities will have to determine their role in the smart home environment. Decisions to partner with device manufacturers or service providers are becoming more and more important. Channel sales, competition, and integration into existing platforms are also important considerations.

Today, utilities are evaluating the benefits of integrating smart devices into utility demand response and energy efficiency programs. DR programs help curtail electric load during high-demand periods, provide crucial grid stability, and help to prevent extreme market prices. Integrating smart products into demand response programs is a lower cost alternative to traditional utility programs, but there are risks that need to be fully understood and managed.

Smart home solution providers face risks and challenges as well. Communication is a significant obstacle. If device manufacturers want to provide DR capabilities in their products, they must provide a flexible solution that accounts for regional differences and can communicate to any utility, even if the owner moves to new house.

With drastically shorter development times required in today’s device markets, cloud-based solutions will likely become the prominent mechanism to communicate between connected devices and the utility. There are several ways that utilities can leverage data to improve the success of DR events: leveraging data from smart thermostats, leveraging data from multiple connected devices, and leveraging data from smart meters.

In addition to integrating smart products into DR programs, utilities are working on new energy efficiency programs. Program design begins with an examination of the obstacles to adoption of more energy efficient products. After this, customized incentives are created to overcome obstacles to broader adoption.

Every energy efficiency program has a logic model and an associated cost-effectiveness evaluation that must be reviewed by the utility and then the Public Utility Commission (PUC). The logic model includes the rationale for the action (e.g., remove barriers) and the methods by which the program achieves energy efficiency goals.

Utilities must estimate the number of units and the kWh/unit savings for their program models. For a utility rebate program, the gross benefit is adjusted to account for free ridership—the 20% of people who will take advantage of the program but would have made the purchase anyway. The benefit is also adjusted for leakage or spillover, where a customer may purchase the appliance in one utility district and then install it in another. The avoided cost is the cost of generation, transmission, and distribution. As long as the cost effectiveness—the ratio between avoided costs versus the cost of the program—is greater than 1.0, the program is approved.

There are different forms of incentives. Downstream incentives are applied at the point of sale of an approved energy efficient device. For example, a rebate is typically applied to influence consumers to purchase an Energy Star appliance. In some cases, the incentive is insufficient to drive behavior, and so the utility may then choose a mid-stream incentive, such as pooling the incentive money and giving it to a retailer to stock only energy-efficient appliances. Upstream incentives targeting manufacturers can be the most cost effective of any financial incentives. In this case, manufacturers are asked to produce more energy-efficient appliances.

Energy efficiency programs are most successful when they leverage big data to provide real-time feedback, analytics of energy use, suggestions for specific actions, and social insights and implications. The combination of real-time feedback plus personalized tips at the itemized appliance level, including advanced diagnostic capabilities, enables consumers to save the most.

The consumer value propositions for traditional energy programs are based primarily on the return on investment from the savings on their energy bills. Selling energy-related products and services has been challenging, as the majority of consumers are not naturally in the market for energy-saving devices, but connectivity creates a new set of benefits that can attract more consumers. The utility channel needs to continue to work to provide messaging and a strong selling process to bring these products and services into the mainstream.

Utilities will have to adjust their expectations regarding the timing in implementation of new solutions. The rapid pace of change in the broader smart home market demands fast deployment and maximum flexibility. Utilities need to consider alternatives to the traditional utility pilot approach—market-based approaches can provide interesting alternatives that reward innovation, attract new partners, and expand the breadth of energy management solutions.

The objective of the connected home experience is to enhance the lifestyle of the consumer, delivering an anytime, anywhere, borderless lifestyle where all devices work together whether the applications are entertainment, home control, or energy management. The connected home makes it easier and simpler to accomplish what people are already doing today. Many daily activities like eating, sleeping, driving to work, listening to music, watching television, reading a book, or going shopping can be enhanced by connected technology.

Tom Kerber

Tom Kerber

Sr. Director, IoT Strategy

Tom leads Parks Associates research in the areas of home controls, energy management, and home networks. Tom authors numerous reports on energy management and home controls covering the evolution of technology, partnership opportunities, and new business models. Tom’s work at Parks Associates includes managing consumer surveys that track trends and market opportunities and enable insightful evidence-based forecasting for energy, security, and home controls. Tom speaks frequently at key industry events, and his views are sought out by national press organizations and publications.

Tom has done extensive consulting with electric utilities operating in a variety of regulator structures and numerous firms within the smart home ecosystem. Recent utility engagements include defining the home area network roadmap for a California IOU, updating the consumer engagement strategy for a traditional vertically integrated IOU, providing consumer and industry analysis to refine EE and DR programs for an IOU in a restructured market, and providing insights on the evolution of the connected home for a large Midwest IOU. Tom has also led projects for many Fortune 500 companies, helping clients refine smart home strategies, develop scenarios of the future of the smart home market, enhance product roadmaps, and refine specific product features.

Prior to working at Parks Associates, Tom worked as director of engineering and director of product management in multiple industries. Tom began his career in the U.S. Navy nuclear power program on submarines. He holds a Bachelor of Science degree from the U.S. Naval Academy in systems engineering and a master's in software engineering from the University of Texas.

Industry Expertise: Residential Security, Smart Home Products and Services, Home Network Technology, Software Systems, Electric Utilities, AMI, Home Energy Management, Demand Response

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