Energy Hacks: The Next Wave of the Negawatt Economy
Big data is changing the way we think about energy. From the way we collect it to the way we use it, data allows homes, buildings, industrial facilities and processes to become more efficient—creating cost and energy savings for both producers and consumers.
However, the challenge for “energy-efficiency” startups is two-fold: How do you get people to care about saving energy when the cost savings are relatively small for each individual or building? And even if you get people to care, how do you create a sustainable and profitable business model?
We discussed these questions last weekend at SXSW at our panel featuring Opower SVP of Marketing and Operations Roderick Morris and entrepreneur Craig Isakow. Their experience in the industry highlighted how big data and analytics answer both of these questions.
It’s no secret that companies can collect vast amounts of data, thanks to publicly available information, whole-home energy usage and smart-meter and smart-grid technologies. Once this data is collected, companies such as Opower use analytics software to change consumer behavior. This is the idea of data transparency, which enables consumers to make smarter decisions. When homeowners know their habits and usage as compared to neighbors, as well as their energy usage over time, they’re more likely reduce their consumption. As a result of these simple tactics, Opower has saved utility customers $416.5 million in energy bills.
How does Opower make money? The D.C.-based startup charges the utility companies a small fee per household to help them comply with efficiency regulations, which are imposed at the state and local levels. This relationship provides Opower a sustainable revenue stream—and access to consumers’ data.
Demand Response & Dynamic Pricing
Companies that use grid and consumer data can create cost savings on the energy production side as well. Demand-response programs send customers alerts or text messages when they should or could reduce their energy consumption. Those messages might arrive when the grid is experiencing peak usage or when the person is unnecessarily using energy—heating or cooling running an empty home, for example. In initial tests at Opower, demand-response alerts have been effective—with or without financial rewards.
Another way to smooth out energy usage across customer bases is dynamic pricing, a model that charges consumers different prices during times of peak usage on the grid. Seventy percent of utilities already offer or plan to offer dynamic pricing to customers within the next five years.These programs help utility companies build relationships with their customers by empowering consumers to better control their monthly expenses. And in an increasingly competitive marketplace, opportunities to build trust and brand loyalty are especially important.
Those opportunities are largely for residential customers. In the commercial space, fragmented building ownership and the lack of alignment between who uses energy and who pays for it pose additional challenges. Yet, commercial buildings alone consume more than 20 percent of all U.S. energy, and research shows that 30 percent of a commercial building’s energy is usually wasted.
Simple fixes though big data collection and analytics can help companies understand and recover buildings’ lost energy. According to Isakow, Wegowise uses data to target the worst performing buildings in an area instead of looking at all buildings equally. By making small changes in behavior and equipment to save energy costs, he says, Wegowise helps companies “quickly identify this subset of buildings that provide the greatest opportunity—and use this information to focus their efforts on buildings that really move the efficiency needle.”
Most utility executives believe that they will see little demand growth in the future, which is problematic. Profits have historically been tied to sales growth, but now they’re struggling to spread the cost of infrastructure investments among their existing customers.
So one obvious question remains on the utilities side: Why should power providers purchase products from companies that look to increase efficiency and reduce utilities sales? As it turns out, they have little choice. Regulations at local, state, and federal levels are increasing, so much so that 95 percent of utility executives anticipate their industry’s regulatory model to change over the next 10 years. Moreover, stakeholders are pressuring them to supply cleaner and more sustainable energy. This means utilities providers have to reduce their own costs and diversify revenue streams by earning financial incentives created by regulators, selling or leasing solar panels to homes in their areas, or supporting electric vehicles, for example.
On the commercial side, building codes further incentivize efficiency with financial implications, in addition to what they would save in energy costs alone. This consumer and regulated environment creates opportunities for companies such as Opower that offer easy, consumer-friendly solutions that ease the transition for utilities.