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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EcoFactor has developed smart algorithms that can control connected thermostats to reduce a building’s overall energy consumption. The system learns the customer’s behavior and can shave off energy consumption without the occupant really knowing. The service can also enable utilities to practice what the power industry calls demand response, where during peak energy usage hours of the day (like a hot summer day) a utility can turn down the energy use of amenable customers.

NV Energy is offering the efficiency service to its customers under the mPowered brand, and those customers can see reduced energy bills. EcoFactor is supposed to enable NV Energy to cut a minimum of 20 MW in Las Vegas market during the first phase of the mass deployment.

The mass deployment is a major milestone for the development of more automated, more consumer-focused demand response services. For a long time demand response has been manual, where large building owners or factory owners agree to manually turn down their energy use during peak times in exchange for compensation. The utility would alert them to the demand response time by phone call or email. But with automated systems and residential-focused services, demand response can be much more efficient and convenient.

EcoFactor was founded in 2006 and launched in late 2009. Its software plugs in a lot of data about things like weather and demographics, and combines that data with information about the home owners’ behavior. Think of EcoFactor’s software like Nest’s learning thermostat, but without the Nest hardware. EcoFactor is also working with Reliant Energy and Comcast and is backed by Aster Capital, Claremont Creek Ventures and RockPort Capital Partner.

EcoFactor is an example of the rise of startups using big data and machine learning to reduce energy usage.

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Indeed, deregulated markets may well act as natural petri dishes for the best combinations of technologies and services to get customers engaged with their utilities. Whether they’ll save energy at the same time is less clear, however — a factor I go into in more detail in my weekly report over at GigaOm Pro (subscription required).

Texas is a natural focus for the forces of competition, or deregulation, given that every customer of investor-owned utilities in the state is being served in a competitive market (UPDATE: municipal and cooperative utilities aren’t included). Texas has also taken a lead in both smart meter-enabled and broadband avenues into the home.

On the smart meter front, the Smart Meter Texas Portal launched last year is the first in the U.S. to serve customers of multiple utilities using multiple smart meter networks. Still, KEMA reports that smart meters haven’t yet driven much innovation in the residential retail innovation front.

On the broadband front, Texas is the home of projects including Ecofactor’s cloud-based thermostat optimization software, or TXU’s  broadband enabled iThermostat system. More recently, Reliant Energy, the Texas energy retailer owned by New Jersey-based NRG Energy, has started testing out home energy management systems from Control4 in a limited, employee-only pilot project.

KEMA’s study contrasts Texas to California, where certain differentiated residential programs exist, but without the element of choice in most cases — customers with solar panels are signed up for a solar power program, for example, while electric vehicle owners get another.

Where Texas might present a deregulated power market-boosters dream, however, it’s an outlier among the 17 states that now offer some form of competitive market. In those, commercial and industrial (C&I) power customers are the main buyers of competitive power, while residential customers remain on the margins of the market.

New York, for example, had two-thirds of its C&I sector served by competitive power providers as of mid-2010, but only about one-fifth of its residential customers, the COMPETE Coalition reports. Connecticut leads most of its fellow New England states with more than 80 percent of C&I customers being competitively served, but residential customers have only recently increased to reach nearly one-third of the state’s market.

Pennsylvania and Illinois, for their part, are putting into place various systems to ensure proper “electronic data interchange” standards and processes for handling customer data. Moving to competitive markets means a huge increase in data being passed between parties, a challenge that adding data from smart meters and home energy management devices will only complicate further.

But that can also mean opportunities for technology providers that can help along. In the U.K., for example, eMeter is working on updating the United Kingdom’s interchange for smart meter data in that market, which has been deregulated since the 1990s.

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Image courtesy of Ca1av3ra via Creative Commons license.

For NRG and Reliant, that means showing off a demo of a smart energy home complete with smart appliances, dashboards, meters, an electric vehicle (Nissan’s LEAF) and variable energy pricing. While this year’s CES wasn’t the first for Few — he formerly hailed from Motorola — it was a milestone for the energy company. Here’s my edited excerpt of an interview with Few:

Earth2Tech: Is this the first show for Reliant and NRG?

Few: It is. This is the first time that we’ve been here. We really consider the opportunity to be here … as a pivotal point for us and our industry, because we now have, for the first time, the ability to take advantage of the digitization of the grid.

We now have the capability to deliver real solutions to our customer base. Quite frankly even if we had a desire in the past to do this, there was just no way to do it, and now we can. So being here at CES is an important step in demonstrating what we’re trying to do for our customers.

E2T: Tell me more about the tipping point for this technology? What’s different this year?

Few: For us, we’ve become the new entrant into the opportunity. If you look back historically, I think the people who have participated in the smart home market have, by and large, been manufacturers of entertainment products, whether that’s TVs or even gaming. People like Microsoft and others trying to bring together home automation and entertainment. Then you have security companies that have tried to bring this together.

Now you have someone like us as an energy provider that has the opportunity to deliver a set of consumer services that leverages smart meters, and smart appliances from manufacturers such as Wolf, GE and others. So it’s a new integration opportunity for consumers in their homes, and as an energy provider, it creates an opportunity for us to participate.

The other thing that you’ve got that’s driving this and serving as a tipping point, is the proliferation of smart phones. People are becoming a lot more comfortable with using applications on their smart phones, and people are getting comfortable with technology. That’s people along the whole spectrum, and with the iPad and Kindle for example. You have people today that might be older people, 60 plus years old, that are now using iPad and Kindles. There’s a comfort level now that’s across the population.

E2T: Have you seen any other power companies or utilities there?

Few: We haven’t seen any, though I can’t say for sure. But for us, we consider ourselves different. We are in the energy sector, but we see ourselves as a consumer services company. We have a different view of our market .

E2T: Tell me about the demo?

Few: We’ve literally created a home. Imagine taking a house and cutting it in half. Then we’re showing how consumers can take advantage of solutions. We’re demonstrating turning on a washer/dryer, and you can see the consumption go up, and then we show real-time pricing. So it shows how you could make a decision to not run [the] washer/dryer when it’s more expensive, but also giving the consumer control too if they want to override that.

We’re demoing taking consumer consumption and forecasting a customer bill for a month out, based on the real-time use of energy. We’re also demonstrating remote control features, and we’re illustrating that by showing the consumer leaving the home and their plans change, and then they can remotely control the home fully using automation and connectivity. So it’s a full 360-degree view in and out of home, integrated with electric vehicles and a home charger solution.

E2T: Is Reliant working with a lot of third parties? Can can you talk about which companies and the process of working with these companies?

To work with third parties, we’ve become active in standards bodies groups. Were on the Zigbee board; we’re part of the NIST process, etc. It’s important for us, [with] our large customer base, and not being a traditional tech company, that we work on standards that we can devote to a consistent set of solutions.

We’re working with companies like Control4, [which] has a home automation product today. We don’t intend to be a manufacturer of solutions. We’re working with GE on smart appliances. From an energy perspective, we have an opportunity to provide our knowledge. We’ve made a smart home in Houston, where we test technologies in our environment, so before we sell to our customer base, and choose partners to work with, we make sure we can fully integrate things.

E2T: The Verizon folks are showing off their smart home demo at CES. Do you see a service provider as a partner for you guys?

Few: I do. We can work with a broad spectrum of partners. In the smart home, wireless and cellular plays a huge part. Verizon has a cable/FIOS offering, and people feel comfortable receiving information over a TV screen. We’ve worked with them in terms of broadband infrastructure in the house for Zigbee-enabled devices, but also other devices that may not go down Zigbee path but are connected through Internet Protocol. Companies like Verizon are also excellent at putting applications and broadband devices in homes (set-top boxes, etc.), and those can become meaningful partners.

E2T: Do you see the Verizon launch as a meaningful tipping point for smart energy homes?

Few: I do, because it’s the more the merrier. They are doing two important things: education, and engagement. These are going to be the things that get people to adopt our solutions. This is very much an experience-driven market.

We sell a product on the energy side where everyone needs it, and everyone has it. You don’t want to touch it; that’s not a good thing. But this is [the] first time people get to touch “energy.” We think that’s very exciting.

E2T: Do you think this could happen in a regulated market?

Few: I do. But here’s the thing: If you break it into pieces … I think if you look at the EV space, there’s a potential opportunity for that ecosystem to emerge in regulated markets — that is, if regulators decide not to rate-base the infrastructure, which I think would be a mistake.

Reliant isn’t waiting for PUCs; we’re doing these things to create solutions for customers. I think parts of this can happen in a regulated market, but I think what’s happening in Texas is yet another great example as to why markets should deregulate, because consumers should have a choice for whatever they buy and companies need to innovate.

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Image courtesy of Vladeb.

Will it work? In my weekly update at GigaOm Pro (subscription required), I take a look at some of the pros and cons inherent in such an approach.

First, NRG bought about 450 megawatts of wind power in Texas and more than 1 gigawatt of solar power in California, most recently with its $450 million investment in SunPower’s 250-megawatt California Valley Solar Ranch. But while California’s mandated renewable power market represents one market for NRG’s green power, its $350 million purchase of Green Mountain Energy in October gives it another, direct-to-consumer version of the green power buys corporations now use to bolster their green credibility.

With the launch of its eVgo project, NRG is trying out yet another form of power retail innovation — charging cellphone-like flat fees for car charging. EVgo customers, including new Nissan Leaf buyers in Houston, can pick monthly payment options from $49 per month for a pay-as-you-go home charger to $89 a month for all the electricity they can use from its planned public network of fast chargers.

Of course, NRG’s retail operations are now limited to deregulated power markets such as Texas, New York city and parts of New England and the Midwest. Different models will have to be developed in regulated markets, such as the municipal utility-controlled Austin and San Antonio, where NRG hopes to roll out its eVgo network via a partnership with Hertz.

Deregulation also brings its own set of risks. NRG’s flat-fee car charging offering is  susceptible to swings in the price of power NRG buys on the wholesale market. With Texas’s current low prices for electricity, NRG’s monthly fee structure seems like it will be plenty profitable, but those prices could go up. In any case, much of NRG’s monthly fees will go to pay off the financing costs of installing the chargers themselves, rather than the power they’ll be delivering.

That means NRG will need lots of customers to make good on its investment. But with plug-in cars expected to remain a tiny fraction of the U.S. and Texas market for some time, NRG expects four to five years for eVgo to reach profitability.

To read the rest of my weekly update check out GigaOM Pro (subscription required).

Few (who will be speaking at our Green:Net conference on April 29) and spoke on Tuesday at the KEMA forum, says retailers in Texas will need to increasingly look to offer services, like electric vehicle miles, the comfort of a constant 71 degree home, and instant access and control over home energy settings, to be able to compete in competitive market places. As Few puts it:

“Today electricity is a commodity that competes on price. Unfortunately the price model doesn’t hold a lot for our industry. But through competition we can create innovation, and Texas has a chance to lead the way on this.”

During his talk today, Few used his experience in the telecom world (he previously worked at cell phone maker Motorola) as a lens for viewing the recent introduction of competition to electricity markets. If companies don’t keep pushing forward on innovation, he said, they’ll risk ending up on the losing side of a strategic battle like Motorola did with Nokia. And competition in Texas won’t only come from other retailers, says Few, but also through the ecosystem of infotech companies that have been emerging in the space including Cisco, IBM, phone companies AT&T and Verizon, and even Google with its PowerMeter product.

Of course the Texas deregulated energy market has had its ups and downs over the past couple of years. Electricity rates have shot up at various times, when customers have expected deregulation to keep them low at all times. And the Texas market is highly dependent on the wildly fluctuating natural gas prices. In other markets like California, partial deregulation failed miserably (Enron!).

Reliant Energy, which is owned by massive power company NRG Energy, sells electricity and services to 1.6 million retail customers and is also the largest provider of electricity to businesses. At Green:Net Few will talk about how a utility can prepare for the coming electric vehicle boom.

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But LG’s “market leader,” which sold for $10,000, is no longer being made, while similar products from the likes of Samsung never even saw the light of day. Such devices have yet to become ubiquitous in the home because, well, who really needs the Internet on their fridge?  Surprisingly, the answer just might be: you. Tomorrow’s Internet-enabled appliances go beyond the glitzy LCD screens and digital shopping lists; in some cases they may even forgo that kind of luxury bling altogether. Instead, these networked home appliances are wired to help consumers save energy and money.

The idea of using the Internet to cut energy use is gaining traction, with a number of startups launching online energy dashboards and in-home displays that supply information about how much you’re using and at what cost. Information is power, they argue, and the research proves them right. One UK study found that energy management systems can help cut residential electricity use by as much as 15 percent.

Most of the products currently on the market require consumers to react to the information provided, either through timed schedules or immediate actions: High prices? Don’t run the dryer. Critical peak period? Run down to the basement and turn down the water heater. But for monitoring systems to really pack an energy-savings punch, the information needs to be instantly actionable, with limited input required by the end user. That’s where your web-surfing refrigerator comes in.

Internet-based appliances of the dotcom days boasted of the ability to go online and download new programs — new fabric settings for your web-connected washing machine, for example, or new cooking options for your online oven. Similarly, the Internet-enabled devices of tomorrow could monitor utility price information and activate, as needed, several internal actions designed to shed power for short, critical periods of time, all with little or no user input.

Instead of the utility or the consumer deciding what should be shut off, the device decides, based on current operation and price. According to Gale Horst, lead engineer at Whirlpool Corp., 98 percent of consumers who participated in a small pilot project testing such devices found the level of interference from such device decision-making to be acceptable.

Andrew Tang, senior director of Pacific Gas & Electric’s smart energy web division, says many of the large “white-box” companies (home appliance manufacturers like Whirlpool, GE, LG and Samsung) have already developed fully addressable, IP-enabled devices. But so far, he notes, they only exist “in deep, dark corporate labs.”

Several factors are keeping them there. First of all, there are no standards governing how such devices communicate, either among home appliances or between the home and the utility. As Whirlpool’s Horst notes, a consumer may buy a washer that can listen to what’s happening on the power grid in Seattle, “But what if that person gets a job in Chicago or Atlanta and it doesn’t interact with the grid?” he asks. Without a guarantee that the appliance will work no matter where you go, it’s a tough sell.

Because the devices won’t work everywhere, manufacturers are hesitant to sell them; and because customers can’t easily access energy management solutions, utilities aren’t able to implement the smart-meter and time-of-use pricing programs that would make them effective. “There’s a chicken and egg problem,” admits Tang.

But there are signs that a shift is occurring, thanks to the proliferation of home entertainment devices and the subsequent need for home networks to connect. The convergence of such technology with energy monitoring is all but inevitable. Crestron, a high-end home automation company, is already partnering with energy dashboard company Agilewaves, and appliance-ready networks will only open up opportunities for manufacturers to begin moving their devices to market.

And, in case you were wondering, LG will be there too. Its Home Network, which was the backbone of its Internet appliance initiatives, is still a major R&D effort.

Like this article? Check out the upcoming Earth2Tech Briefing, “The Smart Energy Home,” the second in our series of in-depth reports on emerging technologies.

This article also appeared on BusinessWeek.com

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