The Nest thermostat is a deceptively simple piece of technology. But it’s already changing the energy market. It will not only save consumers money, but utilities even more so: it will reduce their need for gas peaker plants substantially, writes Deborah Lawrence, founder of the US consultancy group Energy Policy Forum.
Nat gas peaker plants generate electricity when it’s needed most. Such as on hot summer days when air conditioning becomes not so much a luxury as a necessity. And of course, this energy is also the most expensive. So who would have thought that something as lowly as the home thermostat could actually have the potential to make a nat gas peaker plant obsolete?
Smart grids are a fascinating emerging trend in the electricity markets. And perhaps one of the most interesting aspects is the incorporation of smart energy management on the home scale. This has been sorely missing to date. Utilities have long worked with commercial customers to manage energy usage but controlling usage in the residential sector proved problematic. And it has to be said, a bit unimaginative. Not anymore.
While there are a number of smart thermostats in the market, a company called Nest which was formed by a couple of engineers coming out of Apple managed to capture the imagination of consumers. In fact, so much so that Google purchased the company for $3.2B in January 2014, a mere four years after it was founded. So why would Google pay so much for this technology? It’s quite simple, really. The upside potential is profound.
The results have been startling. The use of the smart thermostats knocks down demand during peak hours on the hottest of day
The Nest thermostat is a techno geeks dream. And yet it can still be easily managed by the rest of us. It controls energy demand in the home by gathering data on each individual home’s particular energy needs and then optimizes that data through reduced energy consumption. Obviously this saves users money on their electricity bill. But it also does much more.
The company states: “Most people leave the house at one temperature and forget to change it. So the Nest Learning Thermostat learns your schedule, programs itself and can be controlled from your phone. Teach it well and the Nest Thermostat can lower your heating and cooling bills up to 20%”.
And it doesn’t stop there. The Nest now incorporates DropCam which: “…streams HD video live to your computer, phone or tablet. And sends you alerts when there’s motion.”
So presumably you can check to see if your cat really does taunt your dog. But that is not reason enough to pay $3.2B for the technology. MIT Technological Review puts it best: “For utilities, this kind of “demand response” has long been seen as a killer app for a smart electrical grid, because if electricity use can be lowered just enough at peak times, utilities can avoid firing up costly (and dirty) backup plants.”
And they go on to state: “Demand response is a neat trick. The Nest thermostat manages it by combining two things that are typically separate—price information and control over demand. It’s consumers who control the air conditioners, electric heaters, and furnaces that dominate a home’s energy diet. But the actual cost of energy can vary widely, in ways that consumers only dimly appreciate and can’t influence.”
Cost of electricity can indeed vary widely. To take Texas as an example, on a hot day when air conditioners are running almost continuously, MIT notes that the wholesale cost can run up from about $40 per megawatt hour to spike as high as nearly $5000 per megawatt hour.
So Austin Energy, the local utility for Austin, Texas engaged with Nest Labs Rush Hour Rewards. This is a service provided by Nest to utilities which enables them to access the Big Data from all the Nest smart thermostats in the area. In this case, they were in Austin. By accessing this data, utilities can better monitor and respond to usage during the peak demand days. The results have been startling. The use of the smart thermostats knocks down demand during peak hours on the hottest of days. Now Austin Energy is offering rebates to encourage customers to use more smart thermostats. Why? Significant cost savings.
MIT notes: “Even if Austin gives out $2 million in rebates, that is cheaper than increasing power supply by building a natural-gas-fired generator.” The cost savings involved in the obsolescence of nat gas peaker plants could ultimately save billions of dollars.
If demand response can expand, it could entirely shut down the market for “peakers”
As MIT points out: “Eventually, the effects of demand response could be profound. Austin’s program is designed to manage demand only during the 50 hours each year when electricity consumption tests the grid’s limits most. But if demand response can expand to cover the 300 or 400 hours of peak usage, it could entirely shut down the market for “peakers,” or gas-fired plants that come online only to sell expensive electricity. ‘That’s a big chunk of money that’s at stake’, says Tom Osterhus, CEO of Integral Analytics, a Cincinnati-based maker of smart-grid analytics software. ‘It’s in the billions’.”
Sales of Nests have been robust. According to Morgan Stanley, in 2014 Nest was selling about 100,000 units a month for about $250. This gave the company about $300 million in revenue. This equates to twice the revenue of 2013. Still market penetration is relatively quite small.
So this simple piece of technology has enormous upside potential. And not only for consumers but also for utilities. Avoiding the costs of building expensive nat gas peaker plants will no doubt appeal to utilities. The cost savings could be massive. But it also doesn’t hurt that the Nest is just plain fun to use. And saves you money too.
Deborah Lawrence, a former financial consultant who has published widely in US media, is the founder and owner of Energy Policy Forum, a US-based consultancy group. This article was first published on Energy Policy Forum.