The move shows how energy efficiency services sold to utilities and energy providers are becoming an increasingly attractive business. The news follows the announcement earlier this week that smart thermostat company Nest acquired an energy data company called MyEnergy.

Alarm.com is a Virginia-based 13-year-old company that makes wireless security and energy management systems that use cellular networks and mobile apps to enable customers to manage their homes. The security systems have connected video cameras, and door, window and cabinet sensors, while the home management system has connected thermostats and controllable lighting.

Alarm.com says it has at least 1 million subscribers for its services, and has a partnership with Verizon Wireless to use its network. Verizon is interested in renting space on its network for so-called machine-to-machine services.

EnergyHub’s former business of high-end energy dashboards.

EnergyHub, founded in 2007 and based in Brooklyn, sells software that powers the management of connected thermostats and helps utilities conduct energy efficiency services like demand response. Demand response is when power companies collectively turn down heating and cooling during peak energy times, like a hot summer afternoon. EnergyHub says it expects to have over 200,000 thermostats under management by the end of the year (the company said it had 100,000 under management back in January 2012).

EnergyHub pivoted a couple years ago and previously the company sold a line of connected energy gadgets, including a high-end energy dashboard product. Stand-alone energy dashboards haven’t taken off, particularly high-end ones. EnergyHub raised at least $18 million from investors including Acadia Woods, New York City Investment Fund, .406 Ventures and Physic Ventures.

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Nest is initially launching three different types of energy efficiency services working with a couple of utilities in Texas, including Reliant Energy and Austin Energy, California utility Southern California Edison, and east coast utility National Grid. Nest has been working with Reliant Energy, the utility arm of NRG Energy, since the summer of 2012 to offer Reliant’s customers’ its thermostat.

Nest’s most important new service is its answer to a demand response program, which it’s calling Rush Hour Rewards. Demand response programs are widely used by utilities to better manage the grid, and utilities use them to collectively get some of their customers to curb their energy consumption during peak grid events, like late afternoon on a hot summer’s day. For Rush Hour Rewards, the Nest thermostat uses a variety of techniques to shave off energy consumption during a peak grid event, but while maintaining comfort levels within the home.

Customers opt into the Rush Hour Rewards program and agree to have their thermostat automatically managed during that time period; in return, they save money on their energy bill. They can override the programs whenever they want. Customers who participate can save between $20 to $60 per season, according to Nest.

The startup went out of its way to not use the words “demand response” in its service’s name and marketing, and it seems to have put substantial thought into how to market this to consumers to make it attractive. Nest has also been piloting Rush Hour Rewards for over two years, it said.

Nest’s two other programs include an instant online rebate program, where customers can get one of the learning thermostats when they sign up for an energy plan, and a service called Seasonal Savings, which is a reoccurring energy efficiency tuneup. Seasonal Savings nudges the temperature or cooling slightly to see if the tiny changes affect your daily behavior. If you override those changes, the software will remember that and adjust, but Nest says that 80 percent of the time people acclimated to the small adjustments.

Behind these new services is the cloud-based big data algorithms that are the secret sauce of Nest, and which Nest has now named Auto-Tune. Now that Nest has gotten hundreds of thousands of thermostats out there in the market, and has done two years of field trials, it has been able to collect a large amount of data about how customers use and react to temperature and cooling changes. Nest uses this data about behavioral changes to inform its services and how its algorithms work.

Nest combines this behavioral data with utility data, weather data, personal use data, demographics data and more to collectively manage the thermostats and deliver energy savings. Nest said its services sit between the consumer and the utility, and they approve eligible customers, monitor how the services are performing and how the customers are reacting.

Nest’s offering could be powerful because the company first worked to begin to build a brand and a consumer-focused buzz. Other startups are offering next-generation demand response services with utilities, including EcoFactor, Opower, EnergyHub and others. But the biggest difference between these startups and Nest is that Nest has developed and sells its own learning thermostat.

Nest was founded by a team from Apple, and is led by designer Tony Fadell, who developed versions of the iPod and iPhone. The company is backed by Google Ventures, Venrock, and Kleiner Perkins.

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Remote control of the smart thermostat could prove to be one of the first smart grid applications that is a clear benefit to consumers. One of the major problems with smart meters is that consumers haven’t really seen the direct benefits (beyond savings) of having the smart meter installed at their homes — a lot of the benefits of smart meters are actually for the utility. But remote control of a thermostat is a service that even companies like Comcast and Verizon are looking to sell to their customers.

Honeywell & Opower smart thermostat website

For the PG&E trial it’s still early days. So far the pilot program is pretty small, and PG&E is still recruiting customers to it. According to a report issued last week, there are currently 888 customers involved in the smart thermostat trial, but only 276 of those actually had one of the thermostats installed. 421 of the group were chosen to get a smart thermostat installed (the rest were in the control group that didn’t get thermostats), but 145 of those homes didn’t have a successful installation for whatever reason.

The main reason that the thermostat installation didn’t work even for customers that had been chosen, was that the homes were actually found to be ineligible for the program (say, because of a faulty or incompatible HVAC system, or lack of a broadband connection). But often times that ineligibility wasn’t determined until the installer was at the home, which is inefficient. The report says:

The number of treatment group customers without a thermostat installed is a problem that could compromise the precision of energy savings estimates when the impact evaluation is conducted once the trial is fully enrolled.

So for future recruitment the program needs to be tweaked to evaluate if the home is eligible before the installer gets there.

PG&E is looking for more pilot participants for the trial and eventually wants to have 500 homes with the thermostats installed. Future participants need to own their homes, have central heating and cooling, not move for at least a year, have a broadband connection, and live in certain zip codes like in Fresno and Bakersfield.

Honeywell’s thermostat with Opower software

PG&E isn’t the only utility trialling smart thermostats. Texas energy service provider Reliant is offering smart thermostat services from two Silicon Valley startups Nest and EcoFactor. Startup EnergyHub is also working with cooperative utilities Gibson Electric Membership Corporation and Mid-South Synergy — the EnergyHub service, called Mercury, reduces customers’ heating and cooling consumption at times of peak demand.

One of the earliest utilities to tap smart thermostats for energy management was Nevada utility NV Energy. NV Energy is providing 50,000 customers with a home energy dashboard from Control4 and a programmable thermostat. Another 50,000 are supposed to be signed up down the road.

Utilities can use smart thermostats to collectively and remotely manage home energy consumption at peak times. They can also just use the thermostats for energy efficiency, and for having customers cut their energy bills. Earlier this year I wrote a report on the battle for the smart thermostat, GigaOM Pro (subscription required). Increasingly energy software startups like Opower and Nest are competing over the home smart thermostat.

PG&E is expecting the smart thermostat service to lower its customers’ energy consumption by 5 percent, and potentially by more for customers that use gas for heating and cooling. Update: The Honeywell/Opower thermostat can specifically reduce a home’s heating and cooling by 15 to 25 percent. In comparison Nest says its thermostats can cut 20 to 30 percent of a homes’ heating and cooling energy consumption. So they are about the same in terms of their energy reduction potential. The software is a little bit different though, in that Opower’s thermostat software doesn’t use learning algorithms.

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So here’s my first, where I parse out what I think have been the top 10 best, and the top 10 worst, things that have landed on the cleantech scene in 2012. Feel free to add your own in the comments.

The best:

1). Tesla remains (mostly) on track and is one of the last standing: Tesla hit its goal to launch its second electric sedan the Model S in the Summer of 2012, and reservations have remained high throughout the year. The introduction of the car was met with rave reviews, and towards the end of the year the car won Motor Trend’s Car of the Year award, making it the first electric car to do so. While Tesla did assemble and ship some of those cars more slowly than expected, the company remains on track with its slightly lowered estimates. Tesla CEO Elon Musk even tweeted recently that the company has now become cash flow positive.

In comparison, a lot of other electric car makers, and electric vehicle parts makers, struggled in 2012. A123, which supplies batteries for electric cars, declared bankruptcy, while sales of GM’s Volt and Nissan’s LEAF in the U.S. are lower than expected.

2). Google put almost a billion dollars into clean power: Even though Google isn’t a power provider or utility, the search engine giant invested almost a billion dollars ($990 million) into clean power projects. Google is doing this because it wants to power its data centers with clean power, but most solar and wind are more expensive than fossil fuel power right now.

Last year Google shut down its Google.org-sponsored RE<C project, and many saw this as a sign that Google was moving away from its clean power commitments. However, just this week, Google announced that it has hired energy innovation wiz Arun Majumdar — the former ARPA-E program director — to work on Google.org’s energy research strategy. Expect to see some interesting energy innovation outta Google in 2013.

3). Rock bottom solar prices: Super cheap solar panels might have caused problems for solar manufacturers, but for companies and home-owners that want to put solar panels on their roofs, low cost panels are leading to an unprecedented amount of new solar installations. The super cheap panels has been leading to solar installers doing well, and SolarCity had a successful IPO just last week.

4). Clean Web, Green IT, digital green, or whatever you want to call it: It’s become very clear that investing in capital-intensive cleantech manufacturing technologies is a lot harder for most investors, than investing in software, computing, mobile and the web. Which is why new phrases called Clean Web, and digital green, have emerged to explain startups and big companies that use digital technology to address resource constraints like energy, water and food. See photo below of investor Sunil Paul talking about Clean Web back at Green:Net 2011 (our conference focused on this topic).

5). Big data and energy collide: One of the biggest trends, that is making startups money and actually helping buildings reduce their energy consumption, is new types of energy analytics for energy data. Some of the companies that are playing in this space include Opower, Nest, Tendril, EcoFactor, EnergyHub, Bidgely, Stem, Auto Grid and others.

6). Low power servers: Using low power ARM chips for servers, finally got some more mainstream traction in 2012. Our analysts at GigaOM Pro just held a webinar about this on Wednesday. Earlier this year AMD bought SeaMicro, a startup building servers based on ARM low power chips, and Intel is also into so-called “microservers,” too.

SeaMicro’s SM10000-64 server.

7). Obama won: We’re not super political here at GigaOM, but the fact that President Obama will be the President for another four more years, means that a lot of the incentives for clean power and energy innovation will remain in place. Some might get cut, but the Obama administration has been really active in supporting energy innovation and put an unprecedented amount of funding into clean power, electric vehicles, biofuels and energy technology through the stimulus package.

8). Chinese investors: Chinese giants like auto parts maker Wanxiang are stepping in to buy up low cost cleantech assets that aren’t getting the needed funding in the U.S. Wanxiang is acquiring bankrupt battery maker A123 Systems (given the deal is approved in the U.S.) and also invested in GreatPoint Energy, and Smith Electric Vehicles. It’s not great for the U.S., but the funds are helping energy innovation stay alive in difficult times.

9). Food and Ag tech innovation: One of the most interesting areas to emerge in recent months is startups that are looking at ways of using technology to make food consumption and production more sustainable. There’s now startups building new types of plant-based proteins, invitro meat printing, biotech for crop development, new kinds of insurance for crop production, and more.

10). Desire to address “big problems”: Pervasive across the web and mobile sectors, is a growing desire of entrepreneurs to tackle really “big” and difficult problems. The idea has even graced the cover of the MIT Tech Review recently. As those struggling in the cleantech sector know, this is one of the main reasons that many cleantech entrepreneurs started their businesses. Now a second wave of web entrepreneurs is focused on “big problems” with new investment methods like Peter Thiel and Obvious Corp.

+1: Bill Gates. An outsider to energy that’s fully embraced funding and discussing energy innovation.

The worst:

Since there were a lot of bad things to happen in cleantech in 2012, I’m just going to briefly run down some of the hurdles:

1). Electric cars struggled: Electric vehicles moved way more slowly than expected in 2012. The Volt and the LEAF are below their numbers in the U.S., and Better Place is struggling gaining traction in Israel, it’s first target market. Fisker Automotive has been plagued by problems, and battery makers like A123 Systems have gone under.

2). Solar prices hurting manufacturers: Solar prices kicked solar makers in the teeth in 2012 (and yes, this is also one of the best things). There’s been dozens of solar companies that have closed factories, gone bankrupt or gotten out of solar completely in 2012. It’s even affecting solar thermal companies, which make systems that use mirrors to harness the sun’s rays to make heat, as well as solar concentrating thermal companies, which have developed hybrid systems.

3). Natural gas prices undercutting clean power projects: Super cheap natural gas might make the U.S. energy independent and lower overall carbon emissions, but the low prices are making wind and solar projects less economical. Expect higher natural gas prices in 2013, as they really can’t get much lower.

4). Cleantech got politicized: Cleantech, clean energy and electric cars became fodder for the U.S. Presidential election and it has yet to recover. Somehow clean energy became a cause to fight for by the left, and fight against by the right, despite that some red states are adding clean energy jobs at a faster rate than blue states. Hopefully that will die down now that the election has been decided.

5). Lots of cleantech investors lost money: Many of the generalist venture capitalists that put money into cleantech over the last 5 or 6 years have lost money, and decidedly pulled back on investments in 2012. That will continue in 2013. Though, this is also a good thing, as it is weeding out investors that didn’t make money. The same thing happened in the dotcom bust.

6). World coal domination: As developing countries look to add more and more cheap energy, coal is becoming the defacto energy option. By 2017, coal could replace oil as the largest source of energy. That’s really bad as coal doesn’t just have a lot of emissions, but it has other problems like air pollution, and safety issues for workers. There’s a time factor for clean technologies, and if the world becomes even more dependent on cheap fossil fuels it’ll be hard to turn that boat around.

7). UN climate change discussions: Every year they don’t deliver on important decisions, and end up determining just the very basic needs in the 11th hour. It’s time for a new method of discussion, and a new way to make these important decisions.

8). Advanced Equities: The Chicago broker that raised funds for capital intensive cleantech companies like Fisker, Bloom Energy, SolFocus and Serious Energy, was charged and settled with the SEC over lying to investors. It makes the entire industry, and particularly the VCs that invested early in these companies, look really bad. Thanks guys!

9). Solyndra still hurts in 2012: Despite that Solyndra’s fall was over a year ago, the ghost of the company is still hovering over cleantech deals, investment, political discussions, and the public’s view of solar.

10). Expensive and slow moving battery innovation: One of the reasons electric cars are still not mainstream is because the batteries needed to power them are too expensive and don’t give the cars enough range. While there are a lot of innovative new battery startups, chemistry just moves a lot slower than computing innovation. Sigh — look out another decade for game changing battery innovation.

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Opower has been able to do this by building out its big data infrastructure on Hadoop, and by constructing a sophisticated software engine, which it’s dubbed Opower 4. Opower 4 is its new platform that collects data from 75 utilities, including 96 billion meter reads, crunches that data and provides recommendations to utility customers that encourages them to reduce their energy consumption.

While Opower started its life mailing detailed paper utility bills to utilities’ customers, it now largely interacts with utility customers through digital means — email, text message, and via websites. It’s digital alerts say things like: you’re headed for a high bill this month. It’s newer digital products include a Facebook app and software for connected thermostats, working with thermostat giant Honeywell.

At the same time, paper reports still play a substantial role in its service — of the 15 million homes that are fully connected into the Opower platform, 7 million of those are getting paper reports. The combination of paper reports and digital recommendations deliver, on average, 1.5 to 3.5 percent reduction on an energy bill.

While a lot of startups are trying to do what Opower is doing, and big data energy tools are emerging with a growing frequency, Opower has quietly been able to amass a reach with its platform that puts it well ahead of competitors. Opower is analyzing 16 percent of all of the smart meters in the U.S.

Opower’s SVP Marketing Rod Morris tells me that he thinks Opower’s strategy of starting out with a basic data analytics service, and adding on more complexity and control over time, has made it the defacto choice for utilities. In contrast other competitors have had less success, after starting their businesses selling more complex systems like home energy dashboards, and then later moving into developing an Opower-style platform and software layer.

Honeywell & Opower’s iPad smart thermostat app

It will be interesting to see how Opower’s newer offerings, like its Facebook app and thermostat service, fare, following Opower’s success with its basic platform. Opower has its thermostat service deployed in pilot projects with three utilities, and Honeywell is providing the hardware. You can think of Opower’s thermostat service as Honeywell’s answer to Nest or other smart thermostat services like EcoFactor and EnergyHub.

Opower has raised $64 million in venture capital from NEA, Kleiner Perkins and Accel Partners over the years, and has been considering an IPO since at least last year. Opower is one of the few successful venture-backed cleantech startups out there.

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While other companies make similar claims, Bidgely’s big selling point is that the company says it can take smart meter data, utility data or energy data from a Zigbee-based router in the home, and be able to tell which appliances are consuming what amount of power in a home in real time without having extra hardware or sensors on each plug or appliance. Other companies that focus on this — which people in the industry call appliance-level “energy disaggregation” — need the consumer to buy smart plugs and stick them on every appliance and outlet. That makes these type of hardware-intensive options basically a non-starter for average consumers.

Bidgely says it is the first company out there that can detect appliance consumption patterns without additional hardware and sensors. For example, if the freezer is left open, or a pool pump is old and not running efficiently, it can determine that with its algorithms, explained Bidgely’s co-founder and CEO Abhay Gupta. Gupta previously worked at smart grid company Grid Net, energy company Echelon, and Sun Microsystems.

Gupta said Bidgely has been able to create these types of algorithms first partly because it was able to obtain a significant number of Google Power Meter users after Google shut down its Power Meter application in the summer of 2011. Some of these Power Meter users were using TED real time energy gadgets, and Google Power Meter had its own algorithms to discover when appliance were being used, so Bidgely was able to spend over a year crunching these detailed data sets and creating its own algorithms.

Data deluge

Bidgely gets its data from a few sources, each of which have their own limitations. Gupta told me that through the 8 years that he’s spent working on energy data companies, he knew what was available and wasn’t available from different data sets.

Utilities in some states are working on a Department of Energy-developed initiative called Green Button, which opens up smart meter energy consumption data to third party developers like Bidgely. That data is generally energy consumption data from 15-minute or 1-hour intervals. The problem though is that not all of the utilities in the U.S. are aggressively embracing the Green Button initiative (though California’s utilities are). Also, Green Button data is not always real time and can be a day-old — that makes it far less useful.

If a consumer is one of the few that has bought a router or gateway that connects to the smart meter via a Zigbee wireless connection, then Bidgely can use the data off the router or gateway in real time. Bidgely is working with hardware partners like Digi and Rainforest for this type of hardware (see gadget to the right). Utilities also have these types of Zigbee-connected device projects in the works, and a small number of them are starting to open up that Zigbee energy data to third parties.

Finally, utilities that aren’t opening up their energy data via Green Button or Zigbee device projects can connect with Bidgely directly. But then Bidgely has to connect with the individual utilities and convince them to trust Bidgely with their customers’ data. It’s not an impossible task, and Gupta said it has three trials that will start soon with utilities.

One reason utilities might want to work with Bidgely is that utilities are looking for ways that consumers can benefit from smart meters, as there’s been some backlash from consumer advocate groups — and consumers themselves — that smart meters are only benefiting the utilities. Startup Opower has managed to win over utility customers for its first generation of energy billing services.

But Opower’s service can reduce consumer energy consumption by 1.5 percent to 2 percent — compared with other services like Bidgely that are aiming for far higher reductions. Aggressive utilities are looking to move to the next-level of energy efficiency services.

The applications

Once Bidgely gets the energy data it needs, it has created a recommendation engine that uses the data to give its customers real-time advice and instructions for how to reduce their energy consumption. These could be energy-saving techniques — like get a new pool pump or close your fridge — but they could also be non-energy specific services about the home. For example, closing your fridge can be helpful just to save the food inside from thawing.

The recommendation engine uses cloud-based large machine learning techniques to deliver personalized recommendations, and also incorporates more big data sets into the engine like social, weather, and demographics. Bidgely uses No-SQL database techniques.

Other companies that are relying on algorithms, and big data to reduce consumer energy consumption include Nest Labs, C3, Opower, Silver Spring Networks, EnergyHub, Ecofactor and more.

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In a summer of record-breaking heat, and following an industry-wide trend of the power grid becoming increasingly digitized, utilities are looking for ways to both connect with their customers as well as better manage their customer’s energy consumption. During hours of peak demand (like a hot summer day) a utility’s electric grid can become impacted by too much energy use (picture everyone’s air conditioner blasting). This can cause blackouts, or require expensive power from peaker plants.

The customers, on the other hand, can use the smart thermostats to reduce their energy consumption and save as much as 30 to 50 percent on their energy bills. Energy service providers like Reliant, which operates in a deregulated energy market in Texas, are also using these types of added services, like the Nest thermostat, to keep customers from signing up with competitors.

One of the earliest utilities to tap smart thermostats for energy management was Nevada utility NV Energy. NV Energy plans to provide 50,000 customers with a home energy dashboard from Control4 and a programmable thermostat. Another 50,000 are supposed to be signed up down the road. PG&E has also been piloting the smart thermostat service from Opower and thermostat maker Honeywell.

In EnergyHub’s deal, the cooperative utilities Gibson Electric Membership Corporation and Mid-South Synergy will use the EnergyHub service, called Mercury, to reduce customers’ heating and cooling consumption at times of peak demand. Utilities have long run services like this — called demand response — to reduce energy demand during high-impact hours, but the large majority of these programs have been run with commercial and industrial building owners and are also mostly done manually (instead of automatically via connected data networks).

Honeywell & Opower’s iPad smart thermostat app

Reliant, likewise, is using EcoFactor’s smart thermostat management service to offer a similar type of demand reduction service to its customers. Reliant isn’t using the Nest thermostat for demand response (yet).

All of these smart thermostat services — from EcoFactor, EnergyHub, Nest and Opower/Honeywell — enable utility customers to manage a wireless, connected thermostat using a cell phone or website. While EcoFactor and EnergyHub are focusing on the software side of the thermostat, Nest has created a well-designed thermostat that can learn from the user’s behavior over several weeks.

Service providers like cable companies and telecoms are also offering these types of connected energy home tools. Comcast is offering a connected thermostat service from EcoFactor.

This is still an emerging service, but energy is becoming part of the smart home via both utilities and the data network providers. EnergyHub says it already has 100,000 smart thermostats under management and the company plans to add another 100,000 this year.

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While Palo Alto, Calif.-based Nest has been operating for about a year and a half, has 100 employees, and funding from Kleiner Perkins, Google Ventures and Al Gore’s investment fund, it just came out of stealth on Tuesday to reveal its smart thermostat design and energy efficiency ambitions. Nest says the thermostat is the first “learning thermostat” in the world. It will be available for $250 in mid-November, and can save 20 to 30 percent in a home’s energy consumption.

The idea behind Nest

Fadell explained to me in an interview that he and his wife (who led human resources for Apple) decided to leave Apple about two years ago to spend more time with their young children, and basically retire. But you know how that goes for the ambitious, young, Silicon Valley types. While designing a green home in Tahoe, Calif., Fadell became hung up on the lack of options for a thermostat for the home — they were expensive, not smart, ugly, and basically “crap” says Fadell. And like all good entrepreneurs he thought to himself: there’s got to be a better way.

That option ended up being getting back on the Valley treadmill, and creating one of the most ambitious greentech ventures I’ve seen to date. Nest has raised tens of millions of dollars (they wouldn’t disclose the amount) from high profile venture capitalists including Kleiner Perkins Caufield & Byers, Google Ventures, Al Gore’s investment group Generation Capital, and Shasta Ventures.

While other companies are targeting the smart thermostat market (see my article on The next home energy battleground: the smart thermostat) like Opower and Honeywell, Radio Thermostat Company of America and EnergyHub, and EcoFactor, Nest is the first company that has created an end-to-end smart thermostat service, which offers the software, a gadget and a data-filled website. Fadell tells me that everything that the consumer touches has been designed by Nest.

That’s why it has 100 people and have raised a lot of money. The team building the learning algorithms includes Yoky Matsuoka, the former head of innovation at Google, and machine learning expert while Stanford Professor Sebastrian Thrun is an advisor to the company.

How Nest works

What will stand out most to energy nerds like me that look at a lot of thermostats, is the unique design of Nest. The thermostat’s form is a simple circle, with a ring on the outside and a single button, that controls the entire interface. Like the iPod and iPhone, Fadell wanted to make the device intuitive and simple to use and he says for the Nest system to work “it needed to be a coveted, cherished object that sits on your wall.”

In contrast, a major problem with most thermostats is that only two out of five are programmable and of those that are programmable, only 6 percent are actually programmed by the owners, says Fadell. Most thermostats are confusing, boring, or just not smart enough to keep the home owner’s attention.

The Nest thermostat, on the other hand, is supposed to learn your energy consumption behavior and program itself, and then automatically help you save energy in a convenient way. Once installed, the thermostat takes about a week of hardcore learning to recognize the standard way you heat or cool your home, and then recommends settings that are slightly more efficient than what you already do. It also automatically turns down the thermostat at times that are convenient to you. The device also continues to do lighter learning of your behavior via pattern recognition and your manual interaction with it, throughout the life of the device.

The recommendations and energy efficient mode appear to the Nest user as a leaf on the interface, giving direct feedback on energy choices. But the automatic control of heating and cooling will likely have a bigger impact on energy use. The Nest thermostat has five sensors — temperature, humidity, light and two activity sensors — and the activity sensors can notify the device to turn down the heating and cooling when no one is in the house.

The Nest thermostat also has a feature called “time to temperature,” which shows the home owner how long it will take to heat or cool the home. Say, you set the thermostat for 75 degrees, the Nest interface could read, 75 degrees in 25 minutes, letting you know how long it will take. The idea behind that feature is that most people set a thermostat like an accelerator, says Fadell, increasing the temperature or cooling way above or below the actual desired setting. But giving the user more feedback can help curb this problem — think of it like seeing how long a download of a file will take.

In addition to the thermostat device itself, Nest has created mobile apps and a website to be able to remotely turn up or down the thermostat, and also to give far more detailed data about home energy use. For example, you can log into the Nest website and see how much money you’ve saved, how many times you’ve turned up or down your thermostat.

The smart grid and Nest

The Nest thermostat also has Zigbee and Wi-Fi chips, so that it can connect with both your home broadband connection, and also other Zigbee devices like a smart meter, or smart appliances. Fadell says that thermostats are installed only every decade or so, so when the smart grid is fully deployed he wants the Nest thermostat to be ready.

Other companies like Opower and Honeywell are using a smarter thermostat as a way to connect with and control the smart energy home. While a lot of companies have focused on fancy dashboards that can monitor and control a home’s energy consumption, these devices haven’t really caught on, and smarter thermostats seem to be a better way in.

However, Nest is one of the only companies that is directly targeting consumers for its thermostat. Nest plans to sell its thermostat at Best Buy, via building specialty channels, and through its website. Fadell tells me the company wants to “connect with the iPhone generation where it shops.”

But at the same time that Nest is going direct to consumer, the device will clearly have a utility play, which the company is being quiet on right now. Like EcoFactor’s smart thermostat service, I could imagine utilities could work with homes that have Nest installed, to collectively curb energy consumption during peak grid events. This type of service is called demand response, and the saved energy per household helps utilities manage their grids during really hot summer days. Since the device also has ZigBee installed it could potentially connect with utilities’ smart meters, too.

Nest says that home owners can save 20 to 30 percent on their energy bills, which is one of the highest estimated ways to curb home energy use on the market. In contrast, mailed detailed energy bills from Opower are helping home owners cut around 2 percent. EcoFactor says with its similar thermostat service (but no designed gadget) it can get home owners to cut their energy consumption by 17 percent. If Nest actually takes off, utilities will be interested in working with that double digit energy reduction, though I’d like to see that 20 to 30 percent reduction validated in larger real world customer deployments.

My impressions

I think Nest is one of the more ambitious, and cool, ideas I’ve seen in the greentech space. The Nest thermostat is also beautiful and the idea is game changing on its own. However, I’m not so convinced it will work (I want it to! Prove me wrong!). I just don’t know if people will spend $250 on a thermostat, particularly in this economy. You can buy a connected, digital, programmable thermostat for $50, and $100 on the high end.

Also while Nest includes detailed instructions on how to install the thermostat (including a Nest screwdriver), installing a thermostat is actually kind of confusing. I’ve tried to tinker with some of the newer connected thermostats, and usually I end up wishing I hadn’t tried to do this myself — it involves circuit breakers and electrical wiring. Nest says it will offer Nest-approved installers, if people don’t want to install it themselves. Maybe the Best Buy Geek Squad will be able to help with this.

At the end of the day, it will take an army of Nest-inspired early adopters to convince the rest of the country and world to adopt Nest. Silicon Valley will probably rave about it, as they should, but will the other 99 percent of the country get on board with a $250, do-gooder, smart thermostat that’s as pretty as the iPhone?

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This week connected thermostat maker Radio Thermostat Company of America said that it plans to integrate software from startup EnergyHub as the native software platform for its wireless thermostats. EnergyHub says its “Mercury” cloud-based thermostat service uses analytics to automate heating and cooling, leading to more energy efficiency, and helping consumers save up to 20 percent on energy bills.

Last week energy software startup Opower and building automation giant Honeywell announced they plan to develop smart energy tools together, including the first device: a connected thermostat with Opower’s software and behavior analytics tools to increase energy efficiency.

Startup EcoFactor has been building up its connected thermostat service over the past few years, and released some impressive results this summer. EcoFactor says its results from ten different trials where it automated the process of turning up and down consumers’ thermostats can on average reduce a person’s home energy use by 17 percent compared to a programmable but non-optimized thermostat.

Clearly there’s real savings to be made via smart thermostats and software, and thermostats are something pretty much every home with central heating and cooling needs to have. The software and analytics to control connected thermostats can also sit in the cloud, so the thermostat itself can be cheap and barebones — it just needs the communications chip in it.

However, the barrier right now, is waiting for more and more connected thermostats to get installed. Consumers are slow to do this themselves, so companies will have to find other distribution channels, like utility deployments, building retrofits or broadband service providers like the cable companies.

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