Utility investment in the home – fantasy or future reality?

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By Chet Geschickter

Many utilities are wary of investments behind the meter, especially in the home, where they see lots of problems without lots of payoff. When GTM Research analyst Chet Geschickter studied the issue, however, he discovered that the market has great potential... but much of it may go to outside companies working in partnership with utilities. We asked him to share his insights. – Jesse Berst

Many home energy management startups are banking on utilities opening their wallets to buy home energy management technology.   Although that is still uncertain, our GTM Research market assessment reveals strong underlying fundamentals.  Here’s a summary of the business case for utility investment, the challenges (and opportunities) and how we see this early market emerging.

The fundamentals

Home energy management trials have shown that technology can improve peak reduction results for dynamic pricing.   For instance, the 2009-2010 PEPCO PowerCents DC trial identified critical peak pricing savings of .64 KW.  Remote (utility controlled) thermostats increased savings to 1.09 KW.  The savings may seem small, but these results suggest 100,000 households can shave around 44 MW – roughly equivalent to the power output of a $40 million peaking plant – enough to justify plowing $400 of investment into each home.

The challenges

Here are a few challenges to achieving these results, along with some of the business opportunities they generate:

·         Dynamic pricing – the industry is moving slowly as it grapples with developing rate cases supported by quantitative data.  This creates opportunities for advisory services on program design, data and analytics and modeling.

·         Rollout and support – most vendors are small organizations with limited headcount and fledgling technical support staffs.  The opportunity here is outsourced level one and level two technical support as well as organizations that can help vendors and utilities to mature their support functions.

·         Immature standards – getting back-end systems to talk to home technology sounds simple on paper, but industry experts have found that enterprise standards like CIM and home standards like ZigBee require integration to make them interoperable.  The opportunity: interoperability testing, device certification, and system integration.

·         Program design – utilities know how to generate an invoice, but they are new to the consumer engagement game.  Home energy management is a journey with discrete steps: 1) engage consumers in home energy management, 2) move them toward new programs, rate structures, and 3) provide technology tools to achieve goals.  Opportunity: service providers that can drive consumer engagement, participation and enrollment. 

The future

Of course, what utilities really want is demand management. They are not out to mimic consumer electronics companies.  Therefore, the emergence of open demand response markets by grid operators including CAISO and MISO will create opportunities for service providers to jump in and sell blocks of residential peak reduction the best way they know how – including with technology with strong payback. 

Multiple formats will prevail: services only, technology plus services, self-installing devices, the energy management subsystems of smart appliances, websites and more.  All told, we see a $750 million US market by 2015.  Not a Google size opportunity – but big enough for Google, and others, to get involved.

Chet Geschickter is a smart grid analyst with GTM Research and author of a recent report on Smart Grid HAN.

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