The quest for the Holy Grail of home energy management

Several big players are vying for a piece of the home energy management market – a growing market estimated to be worth over 3 billion by 2015, according to Parks Associates. This market will continue to shake out, with utilities, service providers and energy management vendors all trying to find the right scalable model. And the entrepreneurs and investors who choose the winning horse will be riding a huge wave as home energy management rolls out across the planet.

Utilities used to be considered the primary stakeholders of the residential smart grid, but now other service providers — companies that provide cable, internet, heating and air-conditioning — are adding energy monitoring, control and optimization services to their offerings, pushing utilities into a supporting role. The question is: Are utilities ready and able to compete with these other players? If not, how can they compete or work together with these third parties?

According to Parks Associates, there is viable market pull for an alternative to the energy management solutions provided by utility companies. The opportunity is real.

For utilities to drive the home energy management market forward on their own, they need homeowners to opt in to new programs, such as demand response programs that aim to reduce consumption during peak demand. Most of these programs require the installation of thermostats that can be remotely turned off in times of grid necessity without regard to the customer’s comfort. This approach is proving to be an uphill battle for the utilities, since they have to persuade homeowners to give them permission to install new hardware or gain control over their existing systems. As a vendor, getting over that initial hump of soliciting consumer interest is never easy, but when your business model requires homeowners to invite you into their homes, driving adoption becomes exponentially harder.

It seems rather obvious, but in order for homeowners to want to have these systems installed in their homes, they must be presented with some added value in return. Thus there is an opportunity here for technology providers to partner with utilities to help add this kind of value.

Companies that provide cable, internet, heating and air-conditioning services to homes, on the other hand, have existing relationship where consumers have “invited” them into their homes with the understanding that they will provide value. Furthermore, because service providers are already familiar with most of the infrastructure (i.e. the thermostat and an Internet connection) necessary to implement an energy management solution, adding a service via this channel is very low-impact to the customer and requires minimal effort from the service provider.

The incentive for these service providers? Service providers care most about adding new services that they can sell to customers. Adding an energy management solution gives them a competitive edge with consumers and adds a new source of recurring revenue.

Customers choose these vendors in a very competitive marketplace based primarily on the quality and value of their service. This model, where the service provider is on the hook to deliver optimum service makes them a promising alternative to utilities to extend the smart grid into more homes. However, in order to do so cost-effectively, they will need a technology partner who can provide an end-to-end solution that they can roll out relatively easily.

The utilities and third-party service providers can find ways to work together that are profitable all round. Say a service provider offers energy management to its customers and handles the entire installation and management process. From the grid’s perspective, all these new energy management deployments will lead to a significant decrease in residential energy usage in the area during both peak and non-peak periods, which is of course an advantage for the local energy provider. So in order to accelerate adoption and lower the barrier to entry, the utility could offer a direct rebate to the service provider for each installation, for example the cost of a two-way communicating thermostat.

In theory, everyone wins by this model: The service provider gets the benefit of an added service offering; consumers receive energy bill savings without the overhead costs of buying new hardware, all with the ease and familiarity of working with a trusted vendor; the utility gets attribution for the savings; and the grid gets year-round baseline and peak period relief from residential home demand.

One obvious question still remains: What is the final piece on the technology side to complete the puzzle? Utilities and service providers are both experimenting with different approaches, but none has made a major play just yet.

Scott Hublou is the co-founder and senior vice president of products at EcoFactor, an energy management platform that enables energy and home service providers to add a residential energy management offering to their existing service portfolio to reduce energy usage and costs.