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Martin LaMonica

A View from Martin LaMonica

Nest Thermostat Slays Peak Power

Nest adds “energy services” with utilities to shift heavy air conditioning loads and tune home efficiency.

  • April 22, 2013

“Demand response” is not something most people outside the utility industry know about, never mind pay much attention to. Then again, most people didn’t give much thought to thermostats before Nest Labs made one. 

Nest today is announcing partnerships with a few utilities that could make demand response, or dialing down power use during peak times, familiar and palatable to more consumers. It also has utility deals for thermostat rebates and a service to automatically tune a house’s thermsostat settings during seasonal changes. These applications, called Nest Energy Services, show how the company can deliver add-on services that combine the thermostat—effectively a small computer on the home network—and its cloud-based analytics.

“It’s always been our vision to not just be a thermostat company,” CEO Tony Fadell said during a Bloomberg New Energy Finance conference in New York where he annouced Nest Energy Services. “It’s always been our vision to be a provider of energy control solutions.”

For Nest, founded by former Apple engineers, these utility partnerships are a way to reach more customers and deliver more advanced software services through its acclaimed, Internet-connected thermostat. For utilities, it could increase participation in demand response, a little-known but increasingly important tool for managing grid stability. (See, Turning off the Power to Run the Grid.) Consumers, meanwhile, can save some money on energy bills. 

Very hot days can strain power generators’ ability to keep pace with the large air conditioning load, particularly in the late afternoon and early evening. To meet that peak power demand, utilities call on auxiliary power plants, which are often dirtier and deliver more expensive power. Demand response lightens the peak load by remotely raising air conditioner thermostat settings in consumers’ homes. (Commercial demand response covers industrial equipment and lighting, too.) Consumers are compensated through a rebate or other payment for these peak demand events, which may only come 10 or 15 times a year.

Nest hopes to improve on the demand response experience, using its thermostat as a gateway to consumers. It developed a feature, called Rush Hour Reward, that works like other demand-response programs by adjusting settings. But Nest has negotiated good terms on behalf of consumers, says Maxime Veron, director of product marketing at Nest Labs. People will be notified the day in advance when the thermostat will be adjusted, it will never go above 3 degrees above its normal setting, and the demand response events won’t happen on weekends or three days in a row. That service, already offered with Reliant in Texas, will be extended to Southern California Edison and Austin Energy in Texas. (See, Smart Thermostat Maker Nest Labs Cozies up with Utility.) 

It’s designed the demand-reponse to make the temperature setting change less noticeable, says Veron. The thermostat could pre-cool a home in anticipation of demand response event and only turn the air conditioner on every hour for 15 minutes, rather than have it on continually. The company has also developed a portal for utilities to forecast potential peak-power savings based on the individual profiles of their customers, says Veron.

The analytics are also being used for another feature called Seasonal Savings, where the Nest thermostat will change the settings in an effort to optimize efficiency. In early tests, 80 percent of customers agreed to permanently change the settings, which saved an additional five to ten percent on the original setting, says Veron. That service is being offered with Reliant, Southern California Edison, and Green Mountain Energy in Illinois and New York. Reliant, Green Mountain Energy, and National Grid in Massachusetts now offer a $100 rebate off the $249 list price.

David Crane, the CEO NRG Energy, which owns retail energy company Reliant, says the Nest thermostat is a big step toward technology to improve how the grid is run. The average power plant in the U.S. runs at 43 percent capacity because generators need enough reserve to meet peak demand, a model that’s expensive and wastes a lot of fuel. “If we’re really going to be an energy company for the 21st century, we have to understand and have as many levers to control as we can on the demand side,” Crane said during the conference while on stage with Fadell. “Information technology is coming to our industry and it will be most felt on the demand side.”

Updated at 5:50 with comments from Fadell and Crane. 

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