Consumers and Home Energy Management – as Standards Emerge, it’s no Longer “if” but “When” and “How.”

by John McDonald, IEEE, GE Digital Energy

Home energy management systems (HEMS) for consumers have the potential to redefine the relationship between utilities and their customers to the advantage of both parties. HEMS could be a powerful demand management tool to optimize loads for utilities and, in an automated, affordable form, might become the tool consumers need to manage energy use and related comfort, convenience and costs. Yet HEMS also could be the means by which third parties claim consumers’ attention and possibly win their allegiance.

For utilities, there’s a degree of urgency to sorting out these dynamics. If utilities seek to shape the outcome and strengthen their relationship with customers, they will have to resolve certain issues. Yet utilities should not rush to stake out the high ground. If they stumble, consumer confidence in utility-led solutions will suffer. But if utilities dally, third parties might claim the customer relationship, the branding opportunity and related value creation.

Recall that a few years back Google introduced its PowerMeter-branded, HEMS-related software, and Microsoft Corp. offered its Hohm alternative.

These companies apparently thought their applications could aid consumers who’d received smart meters by providing meaningful energy use to inform new consumer behaviors—a potential boon to utilities and consumers. The concept seemed sound, but both products were withdrawn from the market after two years, and postmortem examinations differed. Some people said utilities were wary of disintermediation. Others said consumers weren’t excited by the offerings or even aware of them. Still others conjectured that the potential and modest savings failed to entice the market.

Whatever the case, a successful foray into this emerging opportunity with consumers must surmount these and other hurdles. But first, utilities must engage their customers.

Meanwhile, demand response aggregators, whose core business is providing utilities with dispatchable load curtailment and providing consumers with useful, related tools, have thrived. Smart thermostat makers are offering easy-to-use, programmable interfaces; some even respond to smartphone commands. Relevant standards recently have been approved and published.

With these opportunities and market forces in mind, let’s survey the current landscape. In this article, I offer my view of the three phases of consumer involvement in home energy management, review what research tells us about the art and science of consumer engagement, check on the status of related standards and look at how policy might evolve to support utility consumer-engagement efforts. But first, let’s look at the utility heritage of direct load control programs, the precursors to current and future efforts to engage consumers and alter their energy use behaviors via HEMS.

A Brief History of Direct Load Control

Direct load control programs at power utilities have a long history. Typically, a utility offers a credit on a customer’s bill if the customer accepts a radio-controlled switch on his or her air conditioner (AC) that cycles it down or off to reduce peak load when demand stresses the grid. A fraction of customers can shave enough peak load to prevent brownouts near term and delay operation or construction of expensive, polluting peak power plants longer term.

Although the national average for customer participation in direct load control programs is 13 percent, according to a 2012 eSource survey—and that may be largely achieving utilities’ current goals for curtailment—those goals likely will rise as demand rises.

Pepco Holdings Inc. (PHI), for instance, oversees a demand management portfolio at three utilities in Washington, D.C., Maryland, Delaware and southern New Jersey with 2 million customer accounts.

PHI has combined direct load control, peak-time rebates and customer engagement to reduce peak load and meet regulatory mandates for reductions in overall electricity consumption. Customer engagement includes tips on reducing energy use and an offer of a programmable thermostat for home energy management, including financial incentives.

Although results vary by service territory, direct load control of AC units largely meets curtailment goals, said Virginia Burginger, manager of demand-side management at PHI.

PHI has installed smart thermostats across its utilities, which customers access via a Web portal for their energy use data. And PHI is beginning to work with third-party curtailment providers to broaden the reach of their direct load control programs, Burginger said. PHI is running a pilot project using in-home displays with messaging around peak-reduction events and energy-saving tips.
The United Illuminating Co. (UI), a New Haven, Conn.,-based distribution utility, serves 325,000 customer accounts in New Haven and Bridgeport metro areas. Historically, UI had a direct load control program that used timer-equipped water heaters to support load shaping for efficient generation and time-of-day (TOD) rates for customer opt in. Now UI is wires-only and continues its water heater program and TOD rates to support customers’ energy management efforts. Customers have access to their energy use data via a Web portal tied to advanced meters. Customer meter data also enables UI to alert customers to high energy usage via phone calls, texts and the Web when they approach their own predetermined thresholds, which enable customers to adjust their behavior before bills become unmanageable.

UI has piloted in-home displays and critical-peak pricing signals to gauge customer interest, but it concluded that customers realized minimal savings for their efforts. A worthwhile program, said Joe Thomas, UI vice president for electric system operation, would have to be automated and effortless, inexpensive and produce attractive savings.

Florida Power & Light Co. (FPL) serves 4.6 million accounts in Florida and has run direct load control programs since 1987. FPL’s residential On Call program aims to reduce summer peak load. Last year, some 810,000 customers actively participated—a well above average, 17 percent participation rate—and reduced summer peak demand by about 1,000 MW, which met its goals. FPL conducted a limited test of home energy controls enabled by smart meters in 2011-2012 and will conduct another trial in 2014 to assess the potential for home automation to support direct load control based on broadband-connected smart thermostats.

From these examples, it appears utilities will maintain direct load control programs to meet a diverse set of drivers while testing the efficacy of information and tools that empower customers for a utility-to-customer double win.

Thinking About Customers

The first level of home energy management relies exclusively on simple behaviors focused on conserving energy use without related information or tools.

This is your father’s HEMS: Install insulation for energy efficiency, maintain rational thermostat settings, turn off unneeded lights and devices. Closing up the house on cool summer mornings and opening it at night can work wonders. Despite utilities’ best efforts, Americans, for instance, remain largely on their own behaviors to conserve energy.

The next level is enabled by a smart meter and utility-sponsored Web portal that offer customer account information and energy use data. Research shows that simple energy use feedback has a modest effect in encouraging energy conservation. This level of HEMS operates on the notion that “you can’t manage what you can’t measure,” and the more granular the information, the greater opportunity for managing use. Although smart meter deployments are blanketing the U.S., along with widespread offerings of Web portal-based energy use data, often that data is not granular enough to inform consumer management. (The government’s Green Button initiative might improve the situation.)

The third level encompasses a spectrum of opportunities, including the use of price signals and a range of technologies that include appliance automation and HEMS. Public service commissions in only about a dozen states support dynamic pricing today, and such policies may be necessary in three dozen more states to enable utilities to offer consumers inexpensive, automated HEMS with a positive cost-benefit ratio and that achieve utility curtailment goals. Again, whether utilities provide the tools or leave that to a third party remains to be seen.

Where are we?

For the most part, U.S. utility customers operate on the first level. Our 20th-century efforts have extended electricity service far and wide at such low prices that useful electrons remain vastly undervalued. The incentive to conserve electricity and use it sparingly has remained artificially low.

And now, a proliferation of electronic devices in homes that accompany our rapidly digitized society has coincided with our need to refresh our aging electric infrastructure. Customers’ electricity use will rise as will costs to cover grid modernization and expanded capacity. Thus, the incentive to manage household electricity use also will grow and will increase the attractiveness of affordable HEMS.

With respect to level two, the coupling of smart meters and Web portal-based energy use information remains of questionable value and customer usage remains largely nascent, although it might grow in the absence of alternatives. From a policy standpoint, regulators need to approve dynamic pricing to enable utilities to send clear price signals that will influence customers’ energy use behaviors. Consumer concerns on energy use data privacy and third-party access to that data also require the attention of regulators. A recent paper by my colleague at GE Digital Energy, David Malkin, in association with Analysis Group, “Results-Based Regulation: A Modern Approach to Modernize the Grid,” addresses these and many other pertinent issues ripe for regulatory reform.

The third level, in which smart meters are installed, dynamic pricing is approved and automation on some level is controlled and monitored by an HEMS, seems distant; however, the development of standards that enable interoperability in this domain have been published, and testing and certification procedures for software, devices and systems are being drafted. Market pressures soon will increase on utilities to determine their approach, to partner with third parties or to stand back as third parties claim customers’ attention and allegiance.

Smart Energy Profile 2.0

My colleague Robby Simpson, a system architect at GE Energy Management, specializes in standards and interoperability across domains and led the development of Smart Energy Profile (SEP) 2.0. SEP 2.0, which recently has been completed, is reflected by IEEE Standard 2030.5-2013, which has been published.

SEP 2.0 ensures interoperability among the four leading technologies in homes—Wi-Fi, Bluetooth, ZigBee and HomePlug—and likely will provide the interoperability for HEMS and related consumer devices, appliances and other technologies from electric vehicles to rooftop solar photovoltaic arrays, heating and cooling, lighting, home electronics, you name it. Several critical aspects of SEP 2.0’s likely success, in Simpson’s view, are that it’s a well-written, well-architected standard based on the now-ubiquitous Internet Protocol (IP), and its security standards are the same as for online banking.

At this stage, Simpson told me recently, after the false starts by the two computing giants, he’s seeing a more measured approach to HEMS and related products.

“Looking back, there was a bubble of hype, followed by the classic trough of disillusionment,” Simpson said. “We’re just coming out of the trough, I think. There’s still more work to do in terms of utility engagement with customers. But there are products in the wings.”

Simpson further said that in the future, an HEMS is just as likely to be an app residing on a smartphone as it is to be an in-home display or other gadget. But he agreed that whatever works for consumers is likely to find market acceptance. And because consumers are a diverse lot, HEMS might take many forms.

The Slumbering Giant

But first, consumers must be awakened to the possibilities. The Smart Grid Consumer Collaborative (SGCC), helmed by Executive Director Patty Durand, in a few years has conducted significant research regarding customer segmentation, engagement and perceptions and attitudes regarding smart grid and HEMS. (Full disclosure: I chair the SGCC’s board.) In the SGCC’s 2013 “State of the Consumer Report,” among eight major themes were several critical to consumer engagement, education and likely to HEMS adoption. Consumers aren’t all alike, so if you want to engage them, segmentation matters. (The SGCC has identified five basic segments by motivation, rather than demographics.)

Second, awareness lags: Three-quarters of consumers surveyed a year ago knew little about smart grid and related technologies. But here’s the basis for optimism: When the benefits of smart technology are described, most consumers like what they hear, and the benefits outweigh their concerns.

On HEMS specifically, the SGCC recently conducted consumer surveys in Atlanta, Chicago and Los Angeles. One finding jumped out: All five consumer segments said that a home improvement store is the best source of energy-saving advice and products. Second place: the customer’s utility. Here’s another: Smart thermostat penetration has reached 22 percent, although there’s high interest among nonusers. Among the five customer segments (defined by motivation), the Concerned Greens exhibit got the highest interest in HEMS, possibly offering visibility into the market segment that will offer traction for utilities and third parties that offer HEMS. Only 2 percent of all consumers own smart appliances, and 1 percent own a home energy management unit. The market for HEMS is ripening.

Conclusion

The developments described here point to opportunity, but whose? How utilities deal with their customers and whether they offer HEMS might reflect their visions of their long-term business models. If utilities seek to own their customers, they must move swiftly to engage them, inform them and equip them to manage home energy use. The development of HEMS that deliver strong value to utility customers might be the glue that binds utilities and customers. Or, a third party might usurp that relationship. For utilities to succeed in this area, they’ll need policies that support customer engagement and empowerment. Meanwhile, many other pieces are falling into place.

John D. McDonald is director of technical strategy and policy development at GE Digital Energy. He has bachelor’s and master’s degrees in electrical engineering specializing in power engineering from Purdue University and an MBA in finance from the University of California, Berkeley. He is past president of the IEEE Power & Energy Society (PES), an IEEE PES distinguished lecturer, board chair of the Smart Grid Consumer Collaborative and board chair for the Smart Grid Interoperability Panel 2.0, Inc., among many other affiliations.