(Photo by Ben Terrett via Creative Commons)
(Photo by Ben Terrett via Creative Commons)
(Photo by Ben Terrett via Creative Commons)

©2014 E&E Publishing, LLC
Republished with permission

By David Ferris

Like most people, Sean McBriarty has always been less than thrilled with his thermostat. Programming it involved using an instruction manual and pushing tiny buttons. He would set it to an energy-saving mode, only to be countermanded by his daughter, who liked it hotter.

Now the Tulsa, Oklahoma, resident has a Nest thermostat. It has a cool-looking dial that, strangely enough, he doesn’t need to use very often. The embedded motion sensor knows when he’s home, and after a few initial adjustments, the unit has learned his family’s comfort zone. He hears no complaints from his daughter, and he realized savings on his energy bill of around $150 a month.

What he might not fully realize is that his thermostat — this wireless, cloud-connected, attentive gadget on the wall — is much more than a thermostat.

It’s actually an armament in a battle among corporations to control the home’s operating system. Whoever wins, it is likely that the thermostat and the energy data tied to it will become much easier to use, and even sexy. The consequences for power companies and for energy use might be profound.

Just consider the roster of companies that are suddenly interested in the temperature in the living room.

There’s Lowe’s, the big-box store, which just rolled out a $299 package that includes a front-door keypad, a thermostat and door-opening sensors that can all be managed with an app. Comcast Corp. has a thermostat that it claims can lower a home’s energy use even if the dweller never touches it. Home-security companies Vivint Inc. and Alarm.com are selling connected thermostats, as is ADT Corp., which thinks temperature control is key to its expansion into smart home networks.

“Energy is one of the biggest drivers,” said Don Boerema, ADT’s chief corporate development officer.

Finally, and most dramatically, is Google Inc., which in February bought Nest for $3.2 billion. It is the second-largest acquisition ever by one of the world’s largest tech companies. By comparison, Google paid only half as much for YouTube, the world’s leading platform for online video. In the words of John Steinberg, a co-founder of EcoFactor, a Nest competitor, “Google wouldn’t have paid $3.2 billion just to get a thermostat company.”

What’s going on here is the Internet of Things. It envisions a home where the lights, locks, fridge and other appliances wirelessly coordinate. The “smart home” has been promised for many years but may just now be arriving, partly in the form of a thermostat.

Why ‘dumb thermostats’ are so dumb

That boring, beige box on the wall — that appliance that is supposed to help homeowners save energy but somehow doesn’t — is transforming into a big Thing.

Manufacturers are equipping thermostats with the latest wireless transmitters and poring over behavioral research to make them easy to use. The thermostat’s data is being uploaded to the cloud and stored in data centers — no one knows yet to what end — and returning to the customer through phones and tablets.

All this may have businesses selling homeowners a ton of new stuff, but it also offers the opportunity to save some serious energy. The thermostat controls residential heating and cooling, which represents 9 percent of U.S. primary energy use. If it does a better job than Sean McBriarty’s old thermostat, it could nudge downward the carbon footprint of the entire industrialized world.

“This is a much bigger play than just the thermostat,” said Kevin Meagher, the general manager of smart homes for Lowe’s. “It’s a potentially huge opportunity, and it’s likely to reinvent many markets.”

To understand how different this new wave of thermostats is, it’s helpful to understand how its predecessor, the programmable thermostat, failed to meet its promise.

In 1995, U.S. EPA launched a program to identify the most energy-saving programmable thermostats, much like today’s Energy Star programs for efficient dishwashers or dryers. The department claimed that these programmable models could save homeowners $180 a year on energy bills. Properly set, they could keep the temperature ideal in the mornings and evenings, and retreat to more energy-saving settings when the household was away or asleep.

But the experience of McBriarty shows that a programmable thermostat is really nothing like a dishwasher. The 45-year-old describes every programmable thermostat he’s owned as “a pain in the butt.” In Tulsa, the summers are humid, and temperatures on a winter day can zigzag from the 70s to freezing. He used to constantly adjust the thermostat, not just for comfort, but to lower humidity and keep his pipes from freezing.

Then there was the ordeal of programming it. “First you have to get the manual out,” he said, “and push the little buttons, and get out a flashlight because you’re working in a dark hallway.”

Behavioral researchers who study how humans interact with thermostats have detailed the many ways that users misunderstand, neglect and even fear them.

Alan Meier, an energy efficiency researcher at Lawrence Berkeley National Laboratory, reviewed the literature a few years ago and did some studies on what was wrong with the programmable thermostat. He found that most people thought the buttons were too small, the symbols and abbreviations too arcane, the programming difficult to execute and the time hard to set. And the box was just plain ugly.

Meier also explored how occupants sometimes use the thermostat to consume more energy, not less. Some people keep the air conditioning on in the summer or the heat on in the winter while they’re gone during the day, in the belief that maintaining temperature saves more energy than cycling it (most of the time, it doesn’t).

“A large fraction of occupants left their thermostats permanently set to a single temperature, or used them as on/off switches, which bypassed the thermostat’s advanced, energy-saving features,” Meier noted. Others engaged in “temperature overshoot” — setting the temperature higher or lower than desired, in the hope that it would change the temperature faster (it doesn’t).

Then there’s the “hold and override.” One study of 35,000 thermostats found that more than half — 53 percent — had fallen victim to the owner’s one-time urge to change the temperature. This indefinitely disabled the energy-saving program. Another study found that 20 percent of programmable thermostats were set for the wrong time. “Most of the interviewees showed little knowledge of the thermostat,” Meier wrote, “and a few were also worried about touching it: ‘I don’t touch it because I don’t understand it’ or ‘I don’t want to mess it up.’”

Another type of frustrated customer is the power company. Austin Energy, the electric utility for the city of Austin, Texas, gave away 90,000 programmable thermostats over a dozen years, at $250 a pop. The $19 million program was the largest thermostat giveaway in the country.

This was worthwhile because each unit had a radio controller that gave Austin Energy the ability to change the home’s temperature. This can be an effective way to manage peak demand. On the hottest summer days, the utility would radio its fleet of thermostats to shut off the air conditioning for half the time during the two hottest hours of the day. The thermostats helped Austin Energy work toward a goal of shaving 800 megawatts off its peak load by 2020.

But the thermostats were a blunt instrument. Once the thermostat was installed, “that would be the last we would know whether it was there,” said Sarah Talkington, an engineer at Austin Energy. The signal only went one way. There was nothing to prevent the homeowner from disabling the radio and going crazy with the air conditioning. All Talkington could do was send the signal to the thermostats, and, minutes later, she said, “literally watch the energy drop on the Austin Energy node.”

In 2009, EPA scuttled its program for energy-efficient thermostats. The problem wasn’t that they couldn’t save energy; the problem was that no one could figure out how to use them. EPA, like homeowners everywhere, got frustrated with the programmable thermostat and gave up.

What smart thermostats know about you

John McCarthy, the computer engineer who coined the term “artificial intelligence,” said that even the dumbest thermostats were a prime example of this intelligence. “My thermostat has three beliefs,” he liked to say. “My thermostat believes it’s too hot in here, it’s too cold in here, and it’s just right in here.”

The next generation of thermostats will have, if not a greater range of beliefs, then a greatly expanded awareness, achieved through a constant conversation with the door locks, light bulbs, wall outlets and motion sensors, as well as information from remote data centers.

“The value is not that we can control a thing in our house,” said Meagher, who runs the program at Lowe’s. “It’s that we can push one button and make three or four things happen.”

The possibilities are apparent to Melissa Washington, who lives outside of Sacramento, California, and has a Lowe’s home network that includes a thermostat and a keypad door lock.

With her old thermostat, when she came home from trips out of town, it took 20 minutes after walking in the door to make the house comfortable during the summer. Now she opens an app and sets the temperature upon touchdown at the airport. “This works out really well for us,” she said. On lazy days, she even changes the temperature from bed.

Like a homeowner, a smarter thermostat could change the game for the power company. But the scale would be thousands of homes.

In 2012, an Austin Energy employee walking through a big-box store noticed that a thermostat capable of communicating with the utility was selling for about $100 — less than half the price of the dumb thermostats the company was giving away for free. Austin Energy put out a bid for smart-thermostat companies to participate in an energy-saving program and signed up three: Ecobee, Nest and EnergyHub.

The new program hardly resembles the one of old. First, Austin Energy pays a lot less, since the utility provides incentives to the homeowner and the thermostat company that are much cheaper than buying the thermostats outright. Second, the thermostats send valuable data that the old thermostats could not.

Because the utility now knows the temperature in the home, it can try strategies more sophisticated than simply shutting the thermostat off. Before the heat “event,” Austin Energy pre-cools the house by 2 degrees Fahrenheit. During the event, it tries to keep the home’s temperature more livable by running the air conditioner for half the time or until the internal temperature rises by 4 degrees, whichever happens first.

About 4,200 customers have signed up for the pilot project, double what Austin Energy expected.

Customers have always been able to opt out of participating on a hot day, but under the old system, it was painful. The customer phoned a call center, which generated an email to the utility, which handed control of the thermostat back to the occupant within 20 minutes. Now the customer can opt out online in five seconds.

With the new system, Talkington can fine-tune energy usage during a heat event because she can see what’s going on. She can see which houses have the air conditioning running, which ones are connected to the Internet, who’s opted out, who’s timed out, what ZIP code customers are in, and in aggregate how much energy is being saved — so far, about 1.2 kilowatts per hour, per home.

“It’s really interesting to see the difference between a 102-degree day versus a 104-degree day,” Talkington said. At 102 F, customers can tolerate handing over control to the utility, but at 104, it’s too sweltering. “102 is kind of my sweet spot,” she said. “I didn’t know that was going to be the case.”

Utility partner, or a threat?

The rise of a teeming, well-funded industry dedicated to managing and presenting a homeowner’s energy is forcing the utility into some unsettling new territory.

It’s possible that the utility industry will find a natural alliance with the smart thermostat and its gaggle of connected gadgets and apps. Or it might find itself upstaged.

Consider how all this energy data will revolutionize the energy bill. In the coming years, experts said, the traditional method of delivery — last month’s usage, arriving in the mail and stated in bulk — will seem very old-school.

Instead, “your electricity bill is looking more like your phone or bank bill that has line items,” said Abhay Gupta, the founder of Bidgely, a Silicon Valley startup that can sort a home’s energy usage by its appliances. The bill might show the days you wasted the most energy, report on the performance of your pool pump, and tie each line item to a dollar value. It could arrive in close to real time.

All of which means that the slow-moving and stodgy utility industry will need to transition from a bland, backward-looking monthly dispatch toward a seamless, jazzy, real-time Web experience, something that has been difficult even for much faster-moving industries.

“It’s not enough to be a commodity supplier anymore. You need to shrewdly make that switch to being a service provider,” said Alex Herceg, an analyst with Lux Research. Customers, he added will come to expect a smooth interface and lots of options. “It would make you as a consumer question your relationship with that company: ‘Maybe I’m going to switch to a utility that has a better customer service experience, or better incentives,’” he speculated.

With the entry of so many aggressive companies, the utility may be at risk of losing its mind share. “Now we’re going to have all this utility billing data from a lot of different people,” said Ed Vine, an energy efficiency researcher at Lawrence Berkeley National Laboratory.

In this crowded space lies a chance that the power company will lose the customer’s loyalty. “If utilities entirely miss the boat on home energy network data, if it goes to Comcast and alarm and security companies, then they’ve missed an opportunity to engage with their consumers,” said Colin McKerracher, an analyst with Bloomberg New Energy Finance. “Someone else will have the opportunity to monetize that.”

“I don’t think it’s a foregone conclusion that the utilities will win here,” McKerracher added.

But these new entrants also have good reason not to crowd out the power company. The utility owns the wires, after all, and has a decades-long relationship with the customer, and its servers contain most of the customer’s energy data. Furthermore, it has the public dollars to push new products into hundreds of thousands of homes.

Perhaps for this reason, Nest has sales partnerships with major utility companies like National Grid and NRG Energy, while EcoFactor has allied with NV Energy, the main utility in Nevada, and the Sacramento Municipal Utility District in California. One of the most partner-seeking power companies is Southern California Edison (SCE).

Last year, the utility did a smart-thermostat trial similar to that at Austin Energy, with partners that included Nest, EnergyHub, Alarm.com and Vivint. This year, SCE is trying another pilot program with ADT and Lowe’s.

Why is SCE one of the only utilities making such alliances? “Maybe because we’re willing to talk to [the companies] about it,” said Mauro Dresti, director of the programs for SCE. “I go to some of these [trade] shows, and these utilities can be very closed. We are definitely out there in the forefront. We are looking at this from a market point of view, and why wouldn’t we participate? Why would we fight it?”

But can it save energy?

One other factor is driving utilities to embrace the smart thermostat: Money is on the line. Power companies in 25 states are under mandates from public utility commissions to reduce energy usage, funded by fees on their customers. Between 2006 and 2012, U.S. utilities’ funding for energy-efficiency programs for both electricity and natural gas rose from $1.9 billion to $7.2 billion, some of which is used to subsidize smart thermostats.

In some cases, the market is beginning to move without mandates. For example, PointCentral, a company owned by Alarm.com, has a business in providing keyless door locks and remote-controlled thermostats to managers of vacation homes. A remote-controlled thermostat is a compelling tool at a residence that sits unoccupied for months in the low season, and in the high season is subject to the climate-control whims of tenant after tenant.

“From an energy perspective, there’s a huge opportunity to save money, not to mention not running around making sure that 1,400 thermostats are off,” said Adam Norko, the company’s sales director.

The American Council for an Energy-Efficient Economy looked at 36 studies over 15 years and estimated that furnishing real-time information to a homeowner about how much energy he’s consuming can lower usage by 9.2 percent. Add in real-time data about major appliances, and the savings increase to 12 percent.

It might be difficult for the thermostat to reach higher savings than that. Vine, the researcher at Lawrence Berkeley, said even the most perfectly managed thermostat can’t reduce a typical home’s energy usage by more than about 10 percent. For more significant energy savings, “you need to spend a lot more money than people are saving now” on deeper, structural fixes, Vine said.

So far, the energy-saving potential of thermostats has been achieved in only two rare types of homes. The first belong to homeowners who have suffered through the instruction manual and wrestled their programmable thermostats into submission. The second is the small but growing number of dwellings where the thermostats do the thinking.