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The Home Energy Management Market Heats Up

From startups to heavyweights, companies are betting that energy management will be the next big thing—a market worth $171 billion by 2014.

Ready, Set...The explosive potential of smart-grid-friendly products is inspiring devices like OpenPeak's Home Energy Manager. | Photo illustration by Matt Hoyle
Ready, Set...The explosive potential of smart-grid-friendly products is inspiring devices like OpenPeak's Home Energy Manager. | Photo illustration by Matt Hoyle

Talk to people about using less energy—and saving money—and nearly everyone thinks it's a great idea. So it stands to reason that home-energy management systems will be a hot item for 2010. It's an appealing prospect: Wireless networks, working with smart meters and smart appliances, shift energy use away from peak times, when it can cost 10 times the off-peak price. Instead of turning on the air-conditioning at 5 p.m. with the rest of the neighborhood, for example, the system could automatically precool the house when there's less demand for energy, making it cheaper. Sounds great, right?

The potential of the energy-management market is huge. By 2014, the global smart-grid market is expected to be worth $171 billion, according to Zpryme Research & Consulting; if the U.S. fully utilized a smart grid, we could cut our carbon emissions 12% by 2030, the equal of eliminating 66 power plants, according to the Department of Energy's Pacific Northwest National Laboratory. Already, upward of 30 companies, including GE, Google, Microsoft, and a host of eager startups, are rushing to get a foothold in the increasingly crowded space.

There are just a few snags: Smart appliances won't be widely available until 2014, according to Kevin Nolan, VP for technology at GE Appliances & Lighting. And smart meters? Thanks to the Recovery and Reinvestment Act, 40 million American homes will have them by 2015, but that's not even half of U.S. households. For now, the real work of managing electricity consumption still falls to the consumer. However attractive the idea of cutting back, doing it on a sustained basis, says Nolan, "is like New Year's, when you decide to go on a diet. Your natural lifestyle creeps back in when the novelty goes away."

The trick is how to engage with customers today, when energy managers can supply information but can't really manage anything. Some companies plan to attract people with sleek and sexy devices that offer energy management as a bonus. OpenPeak's Home Energy Manager, which is expected to cost about $100, has an Apple-like interface with apps for energy advice and management (if you have smart devices), news, and weather, and an app store with free downloads of Facebook as well as apps for sale. "If we can put the actual energy in the background and integrate it into an existing lifestyle, we've got a chance of this working," says David Dollihite, VP of product and technology development at Direct Energy, which, along with Whirlpool, Lennox International, and Best Buy, is doing a pilot project with OpenPeak.

Some players are tacking energy management onto broader services. Home-automation company Control4, for example, is known for linking up home-entertainment and security systems. But its technology also allows smart plugs (around $120 apiece) and thermostats (around $250) to communicate to its platform through a wireless Internet connection or ZigBee network (the industry standard for low-power wireless connectivity). That way, consumers can program networked appliances to run when power is more affordable. "Early adopters—maybe 15% of people—will purchase smart plugs, and that's an interim step," says Clint Wheelock, managing director of clean-technology company Pike Research, "but it's going to take time to get this infrastructure in place."

Price is an issue, points out Zarko Sumic, an analyst with Gartner Research: "The break-even point for buying a device is far away." Several software companies are sidestepping that problem by working through utilities that will subsidize the platforms so their customers get them free or at a discount. EcoFactor, one software-as-a-service firm, focuses on heating and cooling, which account for half of all home-energy use. The program monitors user input, collects weather data, and connects with relatively inexpensive Internet-connected thermostats to manage the home's temperature. EcoFactor has partnered with Texas-based Oncor, which subsidizes the service for customers who sign up.

Microsoft's free Web-based platform, called Hohm, uses analytics licensed from Lawrence Berkeley National Laboratory and data from utilities—Seattle City Light, Sacramento Municipal Utility District, and Xcel Energy have signed on—to provide targeted information and advice to users who don't have smart equipment. "People like to throw technology at the problem, but realistically, will consumers invest thousands in connected devices to save a few hundred on an energy bill? No," says Troy Batterberry, product unit manager for the Hohm project, which is now in beta testing. (Google's PowerMeter is also free to consumers, though it requires that users have a smart meter or monitor.)

Programs like Hohm will likely attract middle-of-the-road consumers who want to conserve energy but don't want to spend money to do it. But to attract the consumer who has never uttered the words "smart grid," companies may have to depend on the good old American desire to keep up with the Joneses, which studies have repeatedly found to be a huge motivator.

That is Opower's approach. The company prepares monthly reports comparing a household's energy use with that of similar surrounding households. Its utility partners send the reports free to customers. It's low-tech, but it gets results: 80% of targeted recipients reduced energy use; the total energy saving, averaged across all customers, was 3%. "This is truly a paradigm shift of industry," says Ogi Kavazovic, director of strategy for Opower, who notes the participation rate in utility-run programs is typically less than 5%.

A version of this article appeared in the April 2010 issue of Fast Company magazine.