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Smart Thermostats: The Killer DER

A “killer app” proves the core value of a larger technology. Think Space Invaders making Atari the premier gaming console of its time, or, on a grander scale, the Internet proving the power of personal computing.

Distributed Energy Resources (DERs) have struggled to find their killer app. Most experts foresee DERs upending traditional grid operations, moving from a central station power model to a network of two-way power flows and responsive demand. But to date, nearly 99% of households haven’t invested in traditional DER solutions like solar panels or batteries.

What if, however, the killer app DERs need to reach their full potential is already out there, readily accessible to utilities and their customers?

The Power of the Smart Thermostat

The smart thermostat can be the killer app DERs need to deeply penetrate the consumer market. Five main qualities set the smart thermostat apart from other DERs:

1)   It’s affordable: The average 5 kW rooftop solar system costs more than $15,000 before incentives. Electric vehicles carry a premium that can exceed $10,000. Home batteries cost more than $5,000.

In contrast, a top-of-the-line smart thermostat retails for around $250, and there are models available for less than $150. And costs continue to go down, making the smart thermostats easily the most affordable DER.

2)   Nearly any home can use it: There are also non-financial barriers to DER penetration. Most require that you own a single-family home. Some require an unobstructed southern facing roof or a garage. Huge slices of the population can’t get past these barriers.

The smart thermostat is accessible to just about anyone, including renters. It is already the most commonly owned DER, reaching nearly 5 million homes, and projected to reach more than 55 million in less than a decade, according to Accenture.

3)   It creates immediate, significant value: By regulating heating and cooling, a smart thermostat gains control of about half of a typical home’s energy use. A smart thermostat’s embedded automation and programmability allows it to immediately reduce heating and cooling energy by 5 to 10%.

4)   It can revolutionize demand management: The smart thermostat paves the way for Continuous Demand Management (CDM). CDM moves from event-based direct load control programs to an automated system that continually shifts load throughout the day while fully maintaining customer comfort. With CDM, the home stays within its residents’ preferred comfort range all day while the HVAC system is dispatched at the optimal times to minimize grid costs.

Utilities can achieve CDM when they connect a smart thermostat to a data analytics platform that learns customer behaviors and characteristics of the home, like how it holds heating or cooling. Using these techniques, CDM has reduced air conditioning peak load by 50% and total usage by 20%. This will save customers roughly $50 per year through energy efficiency, and significantly more savings from reducing peak usage, which customers can realize via time-of-use (TOU) rates or utility rebates. For the customer, these savings make the smart thermostat a no-brainer purchase that pays for itself in under two years while offering a better user experience.  

For the grid, the value is even greater. CDM can create a range of benefits, including optimizing the daily dispatch of generation assets, and avoiding expensive T&D and generation capital expenditures. For an industry that, on average, leaves nearly 50% of its assets idle at any given time, there is tremendous opportunity to make the system more efficient. A detailed analysis conducted by Accenture showed that CDM could create up to $200 of system value annually for each participating household.

5)   It paves the way for the integration of other DERs: A smart thermostat in conjunction with a data analytics platform can become the starting point for the smart energy home. Whatever smart device or distributed generation shows up next—whether it’s a water heater, electric vehicle or solar panel— it can connect to that same platform and help meet the customer’s needs at the lowest system cost.

Realizing the Potential of Smart Thermostats

The barriers to the smart energy home have never been lower. We now have widespread home Wi-Fi, low-cost cloud computing, affordable and attractive smart devices, and strong consumer interest. According to Accenture, three out of four energy customers would be interested in a service that automatically manages their energy usage to save them money.

With all these pieces in place, the final step is for utilities and their regulators to adapt their programs and rules to begin unlocking the value in the smart thermostat. They can do so in the following ways:

1)   Increase smart thermostat incentives: Utilities spend nearly $8 billion annually on demand side management, and a greater proportion of that funding should be devoted to smart thermostats. Smart thermostat initiatives are particularly important for low- and moderate-income customers who have lacked access to other DERs. Some utilities are already leading the way, such as ComEd with its one million thermostat initiative. Additionally, given the value that can be unlocked with CDM, utilities could justify free smart thermostats for customers that enroll in a demand management program.

2)   Incent utilities to actively manage demand: Regulatory commissions are beginning to change utility incentives to reward reduced capex and investment in non-wires alternatives. Such reforms are critical for utilities to fully extract the value from smart thermostats.

The full range of DERs, from solar panels to smart water heaters, will be critical components of our future grid—one that is decarbonized, lower-cost and even more reliable. But the industry needs a killer app to drive us beyond 1% solutions and into the mainstream. Smart thermostats, paired with data analytics and behavioral science, are that killer app to jumpstart this transformation and make the promise of DERs a reality.



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