Take OPOWER (formerly Positive Energy). The Arlington, Va.-based home energy software startup crunches household and neighborhood energy use and other information to deliver personalized energy-saving tips. It has an online portal, like many in the home energy space. But its primary connection with the consumer is a monthly energy efficiency report that arrives in a utility-addressed envelope — and, critically, customers automatically get this report, unless they tell the utility they don’t want it.

“I think that’s fundamental,” OPOWER’s Ogi Kavazovic told me earlier this month. Only 5 percent or so of utility customers tend to actively engage in home energy management pilots, he said. But opt-out can yield a 98 percent participation rate, since it requires a conscious effort to reject the chance to save on power bills. Starting from this far broader, if potentially far less engaged, customer base, OPOWER can get people to cut energy use by 2 percent or so. That’s low, compared to the 10 to 15 percent energy reductions promised by more high-tech systems — but those higher numbers haven’t really been proven yet in commercial deployments.

Utilities also like opt-out’s increased control — an important factor when customers can’t be relied on to predictably lower their energy use. A recent survey by Honeywell showed two-thirds of customers chose comfort (i.e. air conditioning) over saving money during this summer’s heat wave. Smart meters and home energy platforms can help, but only if they’re hands-off. One such pilot, the PowerCentsDC program, found that customers prefer plans with up-front savings and narrow “critical peak” price windows, rather than those asking them to monitor energy use every day.

Redwood City, Calif.-based EcoFactor is taking this fact into account. The startup has software that balances home comfort and power savings without homeowner involvement, and is teaming up with Texas utility Oncor to cut AC loads during hot summer afternoons, much like Comverge and others residential demand response providers do. Those programs are all opt-in, however — whether technology can make the process invisible enough for opt-out remains to be seen.

In the home energy networking space, startups Consert and Sequentric are aimed at giving utilities direct control over household energy loads. Consert recently raised money from General Electric, Qualcomm and Verizon, suggesting potential strategic partnerships. Sequentric is working with Itron and several utility projects, including Duke Energy’s Charlotte, N.C. “virtual power plant” project to directly manage household loads — though both companies have declined to comment on the relationship.

CEO Jim Rogers has said that Duke wants to “own every piece” of its smart grid, including systems in customers’ homes, though some “consumer-first” comments from CTO David Mohler somewhat contradict that. Duke is also working with Cisco, which launched its Home Energy Controller this summer. It will be interesting to see if Duke chooses to use an opt-out model to deploy it.

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Is the Opt-Out Model the Future of Home Energy Management

Kavazovic says the company’s current utility customers represent about 5 million households, including customers of Xcel Energy, Seattle City Light, Commonwealth Edison and Dominion. The 2-year-old company has also been working with Sacramento utility Sacramento Municipal Utility District (SMUD) and Puget Sound Energy over the past 16 months and Summit Blue recently verified that Opower’s technology indeed saved as much energy as expected. Kavazovic says that its deal with SMUD was extended beyond the 38,000-customer pilot program to a three year project with even more customers.

While 3.5 percent might not seem like a lot of savings, companies building energy dashboards and online energy management tools are shooting for the same type of savings of between 3 to 7 percent. And, here’s the savvy business case: it costs a whole lot less for a utility to offer paper-mailed reports than it is for a utility to supply home energy dashboards to its customers. Kavazovic says it costs around $10 per customer per year to supply and send its paper reports, compared to potentially hundreds of dollars per customer to buy and install a home energy management display.

The business model apparently sounded good to New Enterprise Associates. In December, Opower announced that it raised a $14 million round from NEA, and Kavazovic says the company isn’t looking for any more money in the near future. As we noted back then, a $14 million investment will go very far in the world of software development, statisticians and envelope stuffing.

Basically, the company thinks that its reports are both the most effective way to reach a mainstream U.S. population and are the cheapest option, too. The company’s paper reports give customer’s detailed information about their home energy consumption and make recommendations about ways to cut consumption, like turning down the air conditioner by a couple degrees. In test and control groups, Opower’s seen a drop in energy consumption literally days after customers receive such reports, with an engagement rate of 85 percent. The feedback generated from such high engagement levels can help utilities prove to public utility commissions that the energy efficiency programs are working.

Opower’s Kavazovic was very clear that in most cases he sees the company’s paper reports as a more efficient and cheaper version of an energy management website or dashboard. “It’s direct competition,” he said. But I could also envision a world where utilities want to offer a variety of products like paper reports, online tools, and energy dashboards for the more tech-savvy home-owner. Opower wants to grab a significant piece of the online software market, too, despite the fact that the company doesn’t think it’s too large just yet. Opower currently does offer online energy tools and has a team of developers working on others.

Becoming the defacto energy efficiency utility solution won’t be easy, despite the company’s strong showing. Companies like Efficiency 2.0 are taking a similar approach, but skipping the emphasis on paper reports and adding on more social networking tools. Here’s a big ol’ list of startups working on a variety of software, hardware and online options.

The barrier to entry in this market also isn’t that large — software development, knowledge of what tips/recommendations make people respond, and utility relationships — so Opower needs to move quickly. But it’s a good time to rebrand and market their tools, as the energy efficiency and smart grid stimulus funds have forced every U.S. utility to think about how they are going to reduce energy consumption of their customers.

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I am downloading Windows 7 Ultimate RTM as we speak, with the intention of installing it on the HP Mini 5101. I will create a bootable USB from the Windows 7 ISO and then install from there. I’m not sure what drivers will be missing after the install completes. HP hasn’t released any Windows 7 drivers yet, so I’ll let Windows Update find what it can after the install. I’ll probably try Vista drivers and utilities for any devices not working at that point. Have any of you installed Windows 7 on the 5101 yet? How did it go?

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1) U.S. Federal Policy On Climate Change Will Move Slowly: With the election of Barack Obama, the U.S. is making a clear shift in its climate change fighting stance. Obama has already chosen a variety of cabinet members that strongly support clean power, biofuels and energy efficiency, including Steven Chu as Energy Secretary, and Carol Browner as Climate Czar. Obama has also made significant efforts to talk about green jobs as part of the stimulus plan, but the global recession will lead to a pullback in federal funding for renewable energy and energy efficiency in 2009. Don’t get impatient, federal moves take time.

2) Oil Prices Will Stay Low For Much of the Year, Potentially Climbing in Q4 of 2009: With oil prices offering a contrarian indicator for alternative energy, where they go next year is important. While the consensus is mixed, many see oil prices fluctuating around $50 for much of 2009 and potentially creeping up closer to the end. (Though it’s hard to predict oil prices when they do things like crash from $145 a barrel this summer) But $50 is too cheap to be drive the uptake of hybrid and electric vehicles, so the price of oil could effectively slow the progress of the electrification of our cars.

3) Next Generation of Biofuels on the Backburner: The progress on biofuels slowed toward the end in 2008, with project financing drying up and a significant loss of political and public goodwill for corn-based ethanol. In 2009 corn ethanol companies will continue to go belly-up as margins remain tight and the ability to raise funding is delayed until at least the end of the summer. For the cellulosic ethanol companies that had been racing to be the first to build plants in the U.S., several will likely miss their pilot plant deadlines (a couple already have) awhile others could put greater commercial plant plans on hold.

4) Green Buildings are Bright Spot: As part of Obama’s Economic Recovery Plan that he hopes will create 2.5 million new jobs, he’s calling for federal and public school buildings to be made more energy efficient via retrofitting. The plan might be a drop in the bucket cost-wise, but it will bring significant attention to the sector and show how energy-efficient buildings can be money-saving buildings, too.

5) Utilities Turn to Energy Efficiency Programs: The way that policy is shifting to support energy-efficient buildings, utilities will increasingly turn to energy-efficiency programs, like demand response, smart meters, and energy reports to help their customers reduce consumption. Why is that? In hard economic times, utilities in certain regulatory-friendly markets will realize that the cost of reducing energy demand is a lot more cost effective than bringing a new coal power plant online. Startup Positive Energy recently raised $14 million from venture firm New Enterprise Associates in one of the most difficult funding times in recent years, to boost its business of selling software to utilities to curb energy consumption.

6) Gloomy Skies for Traditional Solar PV: While some thin-film solar makers like First Solar are already reportedly reaching grid parity, the traditional solar module market will face tough times in 2009. An oversupply has caused solar module prices to drop, which will continue in 2009 — the CEO of SolarWorld Frank Asbeck recently said that the company’s photovoltaic solar module prices will decline more than 10 percent during the next two years. And the economic downturn means a pullback on solar rooftops in general. As BusinessWeek put it: “If the recent five-year boom in solar energy marked the birth of a global industry, the next half-decade should be its coming of age. But like most adolescents, solar is experiencing growing pains.”

7) Infotech Turns to Energy Efficiency to Save Cash: Like utilities, companies in the information technology sector are realizing that more energy-efficiency computing hardware and software can deliver significant costs, which means greener data centers, servers, PCs and networks. According to the researchers at Forrester, twice as many companies plan to speed up green IT initiatives in the future rather than slow them down.

8) More Green Buildings? Yes. Emergence of the Smart Home? No.: While there will be more attention paid to green buildings, but the dream of the smart home that uses a wireless energy-management system and a smart meter to curb energy demand will remain just that — a dream — in 2009. A variety of startups that moved into the smart energy management space this year (see our Smart Energy Home briefing), but the U.S. market will only slowly add smart meters and it will be several more years before wireless energy management systems are anywhere close to mainstream.

9) Public Perceptions of Green to Become More Savvy: In harder economic times, consumers tend to more carefully investigate what they buy. That means tech companies with green claims — more eco-gadgets, solar panels, vehicles even — will face more scrutiny. And they should. If consumers spend extra money on a greener product, that product should deliver on its promises. The FTC plans a crackdown on greenwashing next year. Journalists are also getting more savvy for nascent topics like carbon markets (see the WSJ’s look at Dell’s carbon neutral strategy).

10) Green Investors Go Conservative Or Double Down: Venture investing across the board will drop in 2009, but some companies will go looking for capital — and more market share — by way of M&A, according to Susan MacCormac of Morrison Foerster.

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The Arlington, Va.-based company, which was one of our 25 up-and-coming startups to watch in the smart home energy space, was founded in March 2007 and had previously raised an undisclosed amount of angel funding. Essentially, Positive Energy helps utilities’ customers cut energy consumption with tools like home energy reports, energy-focused utility web sites and carbon calculators.

Those kind of tools are becoming increasingly attractive to utilities as a way to help them curb the growing demand for energy in the most cost-effective way possible. According to the California Public Utilities Commission, adding energy efficiency programs costs about half of what it takers to add more base-load generation.

And local and state policies are encouraging utilities to embrace those types of tools, too. California was one of the first states to implement utility decoupling, or the separating of utility profits from electricity sales. Such a move helped Pacific Gas & Electric customers save more than 118 million megawatt hours of electricity and $22 billion, and to prevent 135 million tons of CO2 from being emitted over the life of the utility’s energy efficiency programs. For California, that means per capita energy use has remained relatively stable, in marked contrast to the rest of the country, where demand has jumped by 50 percent, according to the California Energy Commission.

A startup that can help a utility save on that kind of level could convince a lot of utility customers to sign up, or at least start testing out its tools. NEA must think so, and its $14 million investment will go very far in the world of software development. Positive Energy is also an example of a company using the tools of infotech — web, software, networks — to fight climate change. For more information and companies with similar aims, check out our upcoming Green:Net conference in March in San Francisco.

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