Expect cautious incursions into the world of deployed energy management solutions in the beginning. Eventually, however, we believe that commercial deployments in larger numbers will be the norm, at least in certain markets. After 30+ years of watching a market evolve at a painstakingly tortuous pace, the next few years should provide some interest and excitement.

Trends In Residential Energy Management

Kurt Scherf | Parks Associates

Expect cautious incursions into the world of deployed energy management solutions in the beginning. Eventually, however, we believe that commercial deployments in larger numbers will be the norm, at least in certain markets. After 30+ years of watching a market evolve at a painstakingly tortuous pace, the next few years should provide some interest and excitement.

 

For years, the marketplace for home management solutions (including home controls, or what many in the industry refer to as "home automation") has been one in which very little middle ground existed. Consumers could spend thousands of dollars for high-end whole-house control systems, complete with touch screen controllers, and full-scale functionality that included automated window shades to remote-control Jacuzzis. Needless to say, these systems have only penetrated (at most) 1% of all U.S. households. Conversely, a number of low-cost and do-it-yourself systems have existed, allowing consumers to control lights through remote controllers, timers, or the computer; set up a modest home security system; and better regulate temperature with programmable thermostats. With notable exceptions, the market for home controllers often required consumers to sacrifice functionality for lower cost.

If home controls have historically been a niche market, why is 2002 (and beyond) any different? As in the case of broadband services and home networking, we anticipate that the entry of service providers, along with other factors such as solutions with increased functionality and lower costs, will drive growth.

One case in point is the energy service industry. As it now appears that energy deregulation will take hold in a growing number of markets, energy service providers will seek to increase their profits by reducing costs (on the generation and distribution sides) and increase revenues by offering new services that may include warranties, remote appliance diagnostics, and remote home management applications. Furthermore, given that customers in a number of markets can now (or will soon) choose from any number of different providers, increasing the end-user's perceptions of a provider and reducing church will be critical.

How will energy companies provide new services, increase profits, and reduce churn? Parks Associates looked at this question from both the residential perspective in studies such as Bundled Services and Residential Gateways (a telephone survey of 2,500 U.S. households in Q3 2001) and E-Home 2001 (an Internet survey of 711 U.S. households in Q4 2001) as well as the light commercial industry (restaurants, grocery stores, managed residential, office, and shopping center properties, and grocery stores) in our Light Commercial Marketplace study (a nationwide survey of more than 500 decision-making managers). What we learned is that, among certain consumer and business segments, there does exist demand for energy management/"gateway" solutions that address an array of applications, from reducing energy costs to remote appliance diagnostics. As a larger number of players providing hardware and software solutions emerges this year, look for a growing number of energy service companies to begin to pilot (or commercially deploy) these solutions.

How will energy service companies address the growing consumer desire to better monitor and track energy use, receive alerts about how certain appliances or systems are working, and track environmental conditions in the home (such as air quality or the presence of carbon monoxide, for example)? Parks Associates sees two solutions:

  • An energy-centric (or "telemetry") gateway; and
  • Emerging communicating thermostat solutions.

As Figure 1 indicates, there exists consumer demand for the three services mentioned in the previous paragraph (an energy management/monitoring service, air quality monitoring, and remote monitoring of the home's HVAC system). The demand for such services particularly increases among consumers who live in households with broadband service, or those that indicate that they are likely to move into a new home in the next 12 months.


Figure 1

The advantage of a energy-centric (or "telemetry") gateway is that it is capable of not only performing AMR tasks, but it links to other home systems and appliances to provide for a host of services. In short, it does provide a good degree of functionality to enable an energy service company to deploy a host of services and solutions to their residential and light commercial customers.

Some drawbacks do exist to this solution, however. First is the dearth of product providers. In the last two years, we have seen a few companies enter the market for telemetry residential gateways, only to fail and exit. Some of the entry barriers that exist are the high cost of the hardware ($1,000 or more) and the lack of business models for the energy service companies to follow. Energy service companies are left themselves to scratch their heads as they ponder how to phase the rollout of these costly devices. To date, only a few small pilots have been run with telemetry gateways. "Beyond energy management," they ask us, "what other services are viable to deploy right now?" This question continues to be mulled by these companies as well as Parks Associates in its research.

Another option for residential energy management is the "communicating thermostat" option. Like the residential gateway, this solution provides a means for two-way communication between the energy company's central office and the homes with the device. In this way, the energy company can remotely monitor and adjust temperature settings. If deployed in large enough numbers, communicating thermostat solutions can provide the energy company with a tool to reduce energy generation and distribution costs, particularly in hot summer months. By simply adjusting each home's temperature by a few degrees (and the companies claim that the consumer will not even notice the difference), these devices can help an energy company better manage load, save costs, and reduce the chances of brownouts or blackouts.


Figure 2

Substantial interest in communicating thermostat solutions does exist among certain consumer segments, as Figure 2 indicates. The advantages of such devices is their relatively low cost ($300 or less), their low-hassle installation (at least as advertised!), and their relatively easy-to-understand user interface. However, these communicating thermostat solutions do not provide for additional services beyond remote temperature monitoring and adjustment, and they may not be the optimal solution for an energy company seeking not only to reduce their generation and distribution costs, but to generate monthly recurring revenue from new and unique services. In short, energy companies appear to be caught in the middle ground between deploying expensive and proprietary telemetry gateways (and worrying about when they will recover their deployment costs) and installing lower-cost and lower-function energy management devices that work fine for certain applications, but are not scaleable to meet any future needs.

In time, these two worlds will come together to enable energy service companies to deploy lower-cost (and higher function) devices that meet their needs for today and tomorrow. When will this happen? Look for announcements in 2002 and 2003 that should change the landscape considerably by offering lower-cost and higher-functionality solutions. In the meantime, energy service companies will be working with the solutions at hand, likely targeting such markets as new home construction, light commercial businesses, and high-end homes.

In 2002, therefore, the push is on to find and deploy home management solutions that provide end-users with pragmatic benefits. By the same token, the companies delivering such solutions (and particularly energy service providers) realize that these technologies must provide real and tangible benefits (increased profits, lower churn in a deregulated market, etc.). Expect cautious incursions into the world of deployed energy management solutions in the beginning. Eventually, however, we believe that commercial deployments in larger numbers will be the norm, at least in certain markets. After 30+ years of watching a market evolve at a painstakingly tortuous pace, the next few years should provide some interest and excitement.

Kurt Scherf is vice president of research for Parks Associates, a Dallas-based market research firm and consultancy that specializes in emerging residential and SOHO technology solutions. Mr. Scherf can be contacted at 972-490-1113 or scherf@parksassociates.com. For more information about Parks Associates, please visit www.parksassociates.com.

Parks Associates is a market research and consulting company that studies residential and light commercial technologies and services. Parks Associates publishes a wide variety of industry reports, hosts several workshops and conferences annually, and provides custom information for Fortune 500 companies.

 


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