Weekly Update

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

Startups and green IT giants targeting the home energy management space might want to remember two little words: opt out.

OPOWER (formerly Positive Energy) certainly has. The Arlington, Va.-based home energy software startup crunches household and neighborhood energy use to deliver personalized energy-saving tips to consumers. It has an online portal, like many in the home energy space. But the company’s primary connection with the consumer is through a monthly energy-efficiency report that arrives in a utility-addressed envelope. And most critically, customers automatically get this report unless they specifically 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 having opt-out functionality built in can yield a 98 percent participation rate from consumers, since rejecting the chance to save on power bills requires conscious effort. Starting from this far broader, if potentially 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.

Opt-out can be a powerful tool if it passes regulators’ demands of low costs spread fairly across the customer base. OPOWER, for instance, costs about $10 per household. Smart meters, on the other hand, cost about $100 per household, while most home energy platforms are another $100 and up. And since most people are only willing to spend about $48 on average on energy management systems, utilities will likely be forced to subsidize their adoption. Since they must treat all customers equally, why not go with an opt-out model to ensure maximum participation?

Utilities also like that opt-out provisions give them increased control. Those I’ve talked to are skeptical about customers’ ability to reliably and predictably lower their energy use, even in the face of higher prices. That’s backed up by a recent survey by Honeywell that showed two-thirds of customers choosing comfort (air conditioning, for example) over saving money during this summer’s heat wave.

Even with smart meters and home energy portals, customers want opt-out options. The PowerCentsDC program reports customers prefer plans with up-front savings and narrow “critical peak” price windows, rather than plans asking them to monitor energy use every day. This actually aligns with utilities’ key imperative to shave peak loads that cost them dearly in overpriced emergency power purchases, versus broader energy-efficiency that decreases overall power sales and revenues.

How can the opt-out concept guide startups and IT giants in the home energy management space? Redwood City, Calif.-based startup EcoFactor has software that balances home comfort and power savings without home-owner involvement. It is teaming up with Texas utility Oncor to cut AC loads during hot summer afternoons, much like Comverge and other residential demand-response providers do. Those programs are all opt-in, however. Whether technology can make the process invisible enough for an opt-out provision remains to be seen.

As for home energy networking, startups Consert and Sequentric aim to give utilities direct control over household energy loads. Consert recently raised money from General Electric, Qualcomm and VerizonSequentric is working with Itron and several utility projects, including Duke Energy’s Charlotte, N.C. “virtual power plant” project. With these partners it aims to directly manage household loads, as I reported last year.

CEO Jim Rogers told me Duke wants to “own every piece” of its smart grid, including systems in customers’ homes, though the “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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Question of the week

Will “opt-out” become the two most important words in the home energy management dictionary?