PowerHouse dynamics

By Marty Flusberg, CEO, PowerHouse Dynamics

The media and analysts covering Clean Tech and the Smart Grid frequently describe the Home Energy Management space as one of the hottest areas, in terms of both new company formation and market opportunity.  As the CEO of one of the start-ups in this space, I enjoy this coverage from a certain perspective.  However, what I sometimes find frustrating is the blurring of a number of different concepts – admittedly related ones – as if they were all the same (which is not historically uncommon for markets at this stage of development).   It has even been suggested that we are already in a bubble, with too many firms chasing the same dream.  While I won’t argue that there are probably a lot more companies in this space today than there will be in a few years when the market has begun to mature, what is often lost in these discussions is that different companies are, in fact, addressing different elements of the market.

Here’s an analogy that might help get this point across: suppose there was a boom in the number of new restaurants in your town.  Wouldn’t it be important to know that one of them was a Taco Bell, another one was a TGI Friday’s, and a third one was a gourmet restaurant run by a celebrity chef?  So, a lot of restaurants are opening; they are all going to serve different markets with different ambiance, menus, and price points.  The same goes for Home Energy Management.

With that in mind, I offer a few thoughts on how to sift through the hype – and the confusion.

Energy Control vs. Energy Monitoring
There are products on the market that remotely control thermostats by time of day according to a user’s settings, but do nothing in terms of showing how much energy is actually being used.  There are other products that monitor how much energy a home is using, but do not offer any assistance in controlling energy use.  Both of these are elements of energy management, but they are not the same.  There are only a handful of companies that do both of these functions – or at least do both of them well.   I would contend that, in the long term, successful companies in this space will need to do both monitoring and control – and much more – in order to truly qualify as energy management (more on that in a future blog post).  But, it does not help people evaluating or driving the market – from investors to consumers – when little is put forth to distinguish between very different sets of functionalities.

Deeper Dive: One Size Does Not Fit All
Even within the energy control or the energy monitoring parts of the market it is not one-size-fits-all.

There are companies that have been offering consumers the ability to control their thermostats and lighting for years.  There are also companies that have provided utilities with the ability to perform direct load control for years on a variety of home appliances, including HVAC, water heaters, and pool pumps.  There are other companies that have more recently entered the market, specifically to help utilities offer demand-response services to residential customers in response to price or other signals.   These functions are all related, but may represent vastly different levels of sophistication or business models.

On the energy monitoring front, all smart meters, whether they deliver data in real time or not, deliver it at the whole-house level.   Most providers of home energy monitoring systems do so as well.  A growing number offer plug-load monitoring, often in conjunction with a smart meter connection.   A much smaller number offer monitoring at the circuit level.    Several offer some combination.  Without getting into my very strong feelings on this subject, while it is true that these are all forms of energy monitoring, they offer very different sets of benefits and user experiences at very different price points.   It might prove very helpful to explore these differences as part of a market analysis.

Home Area Networks (HAN) vs. Home Energy Management Systems (HEMS)
In a recent blog posting, Christine Hertzog (Smart Grid Library) does a great job addressing the issue that, while the terms HAN and HEMS are often used interchangeably, they are not, in fact, the same.   She points out that HEMS are intended to manage energy use, while HAN really refers to the communications network that is intended to connect smart meters, thermostats, smart appliances and other devices: basically a LAN for energy-related activities.  (The term HAN is heavily associated with the utility industry and Smart Grid discussions; it is not a term that companies selling directly to consumers typically use).  Frankly, it is not clear to me that a HAN actually exists as a stand-alone entity.  Different vendors leverage different communications protocols and there are a variety of developing standards.  However, while the goal may be plug-and play-capability, there is no evidence yet of companies in the market that are truly implementing HANs intended to connect a range of third-party devices.

Home Energy Management vs. Energy Information Displays (EID)
Another term being thrown around is Energy Information Display.  Very often, this term is actually used synonymously with In Home Display (IHD – literally a table-top or wall-mounted display in the home), although some discussions of this topic do acknowledge that an EID can also be delivered over the web to a browser or other multi-purpose interface such as a smartphone.  (Christine Hertzog’s recent blog noted that there is a vast difference between the level of information that can be offered over the web and the comparatively limited information that can be offered on an IHD, but this is generally ignored as companies in this space are lumped together).  There is also often no distinguishing made between a stand-alone EID, such as Google PowerMeter, and products that also collect the data and may provide a whole host of other capabilities, including control.  One of the results of this is that Google is often painted as a competitor to Home Energy Management System vendors, when in fact most HEMS can coexist with Google PowerMeter quite nicely.  (Another firm with a web-based EID – GreenBox – was frequently cited in the same breath as full-featured HEMS until its recent sale to Silver Spring Networks, which is a good segue to the next topic).

Utility-Based EID’s vs. General Consumer Products
Silver Spring Networks purchased GreenBox so that it could have software to display the data collected from its own smart meters; this puts it in a better position to compete with other smart meter companies that have had such capability for years, such as Itron and Aclara Technologies.  (Full disclosure: I am the co-founder and former president of Aclara Software).  Other firms that have announced products like this are eMeter, a maker of meter data management systems (and arch-competitor of Itron and Aclara) and, most recently GridPoint.  These systems compete with each other in getting business from utilities, but do not compete directly with companies that offer consumers a HEMS with web-based displays – such as AgileWaves or my own company – though other sales channels.

By the way, here’s a case where everyone writes about the importance of real-time information but may fail to qualify whether a solution they are discussing actually delivers it.  All utility-based web displays today provide data one or two days after it was actually collected.  That is true for all Google PowerMeter implementations with utilities, since Google gets the data from the utilities’ meter data management systems.  While this data offers value, it is not the same as real-time data.

Energy Information Display vs. Energy Analysis
Microsoft and Google are very often lumped together as examples of big companies getting involved in Home Energy Management.  However, what Microsoft offers – at least today – is an online energy audit, or analysis, developed by Lawrence Berkley Labs, and a category of product that has been around for over 10 years.  (My former company, Aclara, deployed its first online energy audit in 1999 and currently provides such a system for more than 75 major US utilities).  Analytics is an important element of energy management, but very different from what Google offers which, in turn, is quite different from what is being offered by other companies in the broad space, such as Tendril and EnergyHub, as just two examples.

The point of this posting is not to be critical of the media – or even to argue that they are wrong in pointing out that this is rapidly becoming a crowded market, because that is certainly the case.   The point is to suggest that a better attempt be made to distinguish between companies in this space, rather than group them all together.  I am reminded of the early days of the Internet, when there was often no distinction made between Internet infrastructure companies, e-Commerce companies, software companies, web portals, search engines, sites devoted to travel, and others:  all were lumped together as Internet companies.   Yes, way too many companies with unclear business models were funded and, yes, there was a bubble.  But even after the dot-com crash, many successful companies emerged from the rubble.  A little more discernment before the fact would have helped investors, entrepreneurs, and others do a better job of predicting which firms were more likely to be winners and which losers.   I look forward to seeing more done to dispel the confusion earlier on in the evolution of the home energy management market – both in terms of its discrete components, which I have attempted to address above, as well as in terms of what such a product must do in order to qualify as not just one component of home energy management, but rather as a solution to home energy management.

By Marty Flusberg, CEO, PowerHouse Dynamics

1. At the annual National Association of Regulatory Utility Commissioners (NARUC) meeting, a decision was made to order utilities in all 50 states to roll out smart meters to all of their customers within 4 years, while putting the costs in the rate base.  As one utility regulator put it: “It’s 2010 for goodness sake.  How can we still have meter readers running around all over the place?  Besides, those cost-benefit studies take up way too much time, and are so boring.”
2. Senate Republicans unanimously backed a Cap-and-Trade bill that requires all carbon credits to be auctioned off, starting immediately.  One Republican Senator reported: “It’s a free market solution that will actually create jobs in the clean tech sector.  What were we thinking?”
3. A last minute amendment to the Cap-and-Trade bill requires all states to implement Feed-In Tariffs for solar installations that pay three times the going utility rate for power sold back into the grid.  A spokesman for the Majority Leader was overheard saying: “How can we let Germany be so far ahead of us with solar – they don’t even have much sunshine over there.”
4. Twenty major utilities that account for almost half of all households announced that they were immediately rolling out mandatory time-based pricing for all customers.  “The results of all of the trials have been almost identical and show that these programs definitely reduce peak load” said one utility official.  “It seemed silly to keep setting up small pilot tests.”
5. A previously unknown task force made up of representatives of all major auto companies, electric car start-ups, and infrastructure players in areas such as charging and battery swapping announced a new set of standards to be in place by the end of the year that would allow integration between all charging networks AND support common battery technology across all car makers.  Said one task force member: “We realized that we were all in this together.”
6. A major home developer announced plans to build 50,000 homes in 2010 with both Solar PV and Solar Thermal, as well as garage wiring to support high speed charging.  Two large banks immediately announced a 1% reduction in mortgage rates for all homes similarly equipped.  A representative of the developer said: “We had to do something to jump start sales.”
7. The last major appliance manufacturer that had not previously made their smart appliance plans known indicated that they were NOT rolling out millions of smart appliances by 2012.
   “We did wide ranging focus group studies” the company announced, “and consumers had no idea what we were talking about.
8. The nation’s largest coal company announced that they had concluded that carbon sequestration was too expensive and unlikely to work, and that they were diverting all available resources to build a 2GB wind farm in Texas and purchase a major supplier of solar panels.   When asked about this apparent shift in corporate direction, a spokesman said:  “Have you ever been in a coal mine?  They’re downright dirty and unpleasant; it’s time to move on.”
9. At the annual OPEC meeting, it was announced that OPEC had allocated significant resources to support lobbying in the US to raise the CAFÉ standards to 50 mpg for cars and SUVs by 2013. An oil minister explained: “The sooner we can wean the US from oil, the more there’ll be for us.”
10. A last minute decision to return to Copenhagen has resulted in a new treaty that will sharply reduce carbon emissions by 2030, and is binding on all nations.  “We realized that climate change was a global problem” said the representative from one country. “We decided it was time to put our parochial interests aside.”

By Marty Flusberg, CEO, PowerHouse Dynamics

As someone involved with energy monitoring, I am often asked why monitoring should have any intrinsic effect on energy reduction.  I have found that defensively snapping: “because it does” somehow does not win the argument.

For that reason, when I recently again came across the EPRI study that was released earlier this year entitled Residential Electricity Use Feedback: A Research Synthesis and Economic Framework, I was struck anew by the wealth of insight that the study had to offer.  This was caused by a combination of the synthesis of multiple prior studies and the creation of a conceptual framework for the results.

For example, one of the conceptual elements was a topology of feedback mechanisms in order of relative effectiveness, as shown here:

This taxonomy neatly captures a range of factors that impact the effectiveness of feedback, including timing, breadth of information, granularity of information, and the complementary combination of monitoring and control.

Factors that are reported to impact effectiveness are spelled out elsewhere in the report as follows:

• It is provided frequently, as soon after the consumption behavior as possible.
• It is clearly and simply presented.
• It is customized to the household’s specific circumstances.
• It is provided relative to a meaningful standard of comparison.
• It is provided over an extended period of time.
• It includes appliance-specific consumption breakdown.
• It is interactive.

I would like to explore a couple of these in the context of understanding what type of feedback works, beginning with another conceptual framework from the report (actually a combination of 2 concepts) about the mechanism that makes feedback work:

“Feedback has a motivational effect because it leads people implicitly or explicitly to set goals for themselves that they then try to achieve………… analysis suggests that feedback works through a three-step process: learning, habit formation, and internalization of behavior.”

In other words, feedback by itself works because it allows consumers to see the impact of their behavior and take steps to change, with such steps ultimately becoming part of their standard behavior through reinforcing feedback.

Within that context, consider one of the items on the earlier list.  Appliance specific monitoring is important because without it, it is very difficult for consumers to understand the impact of their behavior.  Sure, they can run around the house and turn things on and off, but that wears thin very quickly, and may not accurately tell them what anything really costs in any event.  Telling a consumer that they are using 1800 watts right now has very limited value, because it is difficult to know what that means.  Telling them how much they are spending on air conditioning and their refrigerator has much more meaning, particularly if compared to norms, which is one of the other points on the above list.  I would take that even further; to be really effective it is not enough to tell a consumer what he is spending and how that compares; the next logical step is to let them know their options, and what impact each option would have.  Actionable intelligence is much more valuable than simple feedback data.

As an aside, having the right level of granularity is important.  Devices that measure energy at outlets have tremendous value, but fall short by themselves because they are not able to measure the biggest electricity users in the home, such as central air, electric stoves, electric dryers, and electric water heaters.  Trying to measure every device and every light bulb in the house may be too extreme in the other direction.

One of the other items on the list is providing feedback over time.  This is a logical conclusion from the conceptual framework that says that feedback leads to habit formation and then internalization.  Without ongoing feedback, it would be hard to see that evolutionary change in behavior.

One of the related questions I often get asked is: “wouldn’t the effect of monitoring wear off over time, since people will learn what they need to know, change their behavior, and then forget about it”?  One of the analogies I like to use in addressing this is a diet. Diets succeed when people continue to monitor their weight after reaching their goal (or plateau), and immediately change their behavior if they see their weight slipping back up.  Energy monitoring is exactly the same thing for an “energy diet”.  Besides, things can change in the home over time.  For example, monitoring at the right level of granularity will identify situations where an appliance is no longer functioning properly and starting to use a lot more energy.

Of course, I readily admit that once the newness wears off, people are likely to “play less” with their energy monitoring systems.  For that reason, monitoring should be proactive; don’t just wait for a consumer to come to an in-home display or web portal, but proactively provide performance reports (in comparison with norms or others wherever possible) as well as alerts to problems, such as a deteriorating appliance.

So, the answer to the challenge on why energy monitoring and feedback works is not just “because”.  In fact, the wrong approach to energy monitoring may not work at all.  There are a variety of factors that must be taken into consideration when designing an energy management system, but if done correctly there is ample evidence to suggest that it does work – and can work quite well.

By Marty Flusberg, CEO, PowerHouse Dynamics

A recent report suggests that home systems Integrators are beginning to branch into the “Green market” in response to market conditions that are negatively affecting their revenue base.  This trend, of course, pre-dates the current recession, with CEDIA leading efforts for several years to promote a green strategy for Integrators.

The report (conducted by Parks Associates jointly with CEDIA) reminded me of an article that appeared in the New York Times last January entitled: ”Smart Home is Still Looking for a Market.”   In it, the reporter notes that the Smart Home concept has been around for decades but still remains a dream.  He then quotes Tim Woods of Poco Labs as saying, and here I paraphrase, “what is needed is a killer app……. and that killer app will be energy efficiency”.   Seems like the industry is hoping to unleash the killer app.

Adding a green angle to what they are delivering makes a lot of sense for Integrators.  First of all, it captures the overall mood of the country, where an increasing number of people are expressing concern about climate change – not to mention the angst of many higher income households about doing something green despite – or perhaps specifically because of – significant energy use.

Second, it reflects the reality that lighting and thermostat controls really can reduce energy use in most circumstances, and builds off increased green positioning by the manufacturers themselves.

Third, if done correctly, a green approach can be a low cost entry point to the home – as well as a route to an ongoing relationship.

In order to “walk the talk”, Integrators need to offer something different than – or at least in addition to – the standard lighting and thermostat controls.  One such approach is to implement a home energy monitoring system.  An effective system can help homeowners understand where they are using energy – and what steps they can take to reduce their energy usage.  It should effectively illustrate the impact of changes in lighting or thermostat settings in real-time or – even better – before the changes are actually made.  When integrated with control systems, this can really deliver energy efficiency.

I recently heard a well known consultant in the Integrator space suggesting to a room full of integrators that they lead their sales efforts with a proposed energy audit combined with the implementation of a monitoring system that would show homeowners the impact of any steps they took to reduce energy usage.  There was an ensuing conversation about whether this meant partnering with an energy audit firm – or actually becoming one.

Taken to the extreme, this might suggest some interesting convergence trends.  Already, integrators in several markets around the country have put their toe in the water of solar power installation.  If we now throw energy auditing into the mix, are we seeing a future where Home System Integration is to be taken at its broadest sense, and energy management actually becomes a central focus?  Is green remodeling a logical element of this ecosystem, and does that then fundamentally change an industry that has been focused on new construction?  Are current Integrators positioned to take advantage of this new future, or are we going to see the major players coming out of a different part of these converging markets?

Only time will tell.  But the time for Green is now.