Google’s acquisition of Nest provoked a wave of uncertainty about all the personal data acquired by Nest's smart thermostats. So what happens when our homes are connected to a "smart grid," and what does "smart grid" mean, anyway?
First of all, the idea of a digital power grid is far from inevitable. The monumental cost of upgrading existing power grids means that energy providers need persuading. Amazingly, Nest was well on its way toward lobbying the utilities when they were acquired.
Nest made itself valuable to energy providers by inserting itself between user and provider, making energy-saving decisions profitable for users (called demand side management) and then bartering usage information to energy providers—20 of whom have found the partnership useful enough to pay Nest $30 to $50 annually per installed thermostat. After Nest proved themselves to users, they developed an opt-in program that automatically tweaks thermostats to save energy.
As our peers at Co.Design wrote, Nest had already made inroads with prominent providers already building smart grids in New York, Southern California, sub-Panhandle Texas, and others. Nest has developed partnerships with energy providers.
Monitoring demand is the most fundamental job for a smart grid, a term which usually refers to power grids with sensors tracking energy usage, demand spikes, and backup power usage. Smart grids generally rely on home usage-measuring smart meters to pinpoint-shutdown energy-hogging appliances to avert grid failure. Another key feature: The ability to redirect energy around downed power lines or other broken links in the energy chain.
Is Nest a real smart meter? Not quite. It doesn't allow direct, two-way communication with the grid itself, nor does it allow remote metering. Instead, it gathers usage data over time, which is far more informative than current non-smart power meters that just total up monthly energy consumption. These partnerships Nest built are a stopgap, and Nest's partnerships are attractive to energy providers because the latter can see home energy usage beamed from Nest's data repositories without having to build an Advanced Metering Infrastructure.
The first working smart grid was ENEL's Telegestore system—started in Italy in 2005—and it's still the largest, with over 30 million smart meters firing information back and forth to annually save the country €500 million in formerly-lost energy, at a project cost of €2.1 billion.
The Pecan Street Project in Austin, TX became the first online U.S. smart grid in 2009 and currently uses over 500,000 devices to serve almost a million residents. The U.S. projects initiated in 2005 and boosted by $3.4 billion of the 2009 Federal Stimulus Package are being nurtured by the DOE's Smart Grid Implementation Strategy (SGIS) team. Other projects are beginning internationally, too.
Upgrading U.S. grids to smart grids will cost between $17 billion and $24 billion per year for the next 20 years, according to a 2011 report by the utility-funded Electric Power Research Institute. In general, energy providers have little incentive to spend money on selling less energy to consumers, especially as the specter of subsidized renewable energy threatens to cut more profits. Even at the local scale, replacing traditional meters with smart meters costs about twice as much, and that doesn't include IT and digital infrastructure.
But energy providers have an interest in mastering supply and demand to avoid outages and keep consumers happy as state-by-state deregulation introduces energy competitors. To draw consumer attention away from attractive green energy, providers will have to show that their systems are improving efficiency with new technology.
Google bought into these relationships with its Nest purchase, accomplishing a long-standing goal that seemed out of reach in 2011 when it killed its energy-monitoring PowerMeter, allegedly due to low adoption. But what really scuttled the PowerMeter was energy providers' colossal red tape, according to an interview with Google Ventures CTO Michael Jones last year.
Even though Google didn't succeed with its homegrown power meter, smaller companies have had slightly more luck. Energy usage report provider Opower has been surviving purely on cash infusions, needing $65 million in venture capital since launching in 2007 to finally reach self-sustainability in 2014. Opower services over 20 million homes in the U.S., U.K., Canada, France, Japan, Australia, and New Zealand. It's curious to note that in a 2010 American Council for an Energy-Efficient Economy report, the only other service listed in PowerMeter and Opower's bracket, Efficiency 2.0, was swallowed up in 2012 by C3, an energy usage software provider to utilities. It was presumably turned into dogfood.
Another major boon for Google was Nest's user data. As the 2010 ACEEE report states, smart grids need both gadgets and data to learn user behavior over time and recommend energy-saving settings. Google now has a user base and a proven product to which to harness its massive information-delivering infrastructure. And after last month's leak of Google's upcoming EnergySense app, it's clear that Google wants to monitor power use throughout the house, not just the HVAC systems which suck down most of your house's power.
Google has already shown interest in becoming a utility provider: It was granted a FERC license to buy and sell energy in 2010. But it's Google's announced partnership with GE last year that lends credence to a future of Google energy infrastructure. By integrating Google Maps into GE Smallworld's electrical, telecommunication, and gas systems to build geospatial analytical tools, Google has built expertise in smart grid development for nearly every piece of utility infrastructure.
Google is also investing in energy sources. Last year it made a $280 million investment in solar power for home use, and the company's marketing has been known to claim that a business using cloud services like Google's decreases the environmental impact "by up to 98%." The search giant also profits indirectly from green energy by buying wind energy and selling it back to get green energy credits to reduce its carbon footprint—a strategy it promoted to the energy industry and fellow conglomerates in a white paper published last April.