Could behavioral demand response be enough to satisfy utilities?

Opower, the company that has managed to save 2 terawatt hours of power by sending people energy savings recommendations by email, text, and snail mail, recently launched another service—behavioral demand response. The effort is part of a growing trend where startups believe that residential power customers can offer a significant, efficient, and time effective solution to demand response.

Behavioral demand response uses data analytics, smart meter data and mobile/web communication to get customers to turn down their power during peak periods. Currently only 5 percent of residential power customers participate in any demand response program. Most customers just aren’t interested, particularly since the payments on the individual homeowner scale are small. Opower has run some preliminary trials and has a three year partnership with Baltimore Gas & Electric. The company says it’s been “successful,” arguing that it could reduce the per-kilowatt DR cost by 40 percent.

What Opower is pushing is the idea that utilities don’t need in home hardware to efficiently manage peak power demand among residents. That perception is critical because startups like Nest are emerging as strong competitors that want to sell utilities not just its learning thermostat, but energy services, including demand response capabilities that stem from having smart thermostats in customers’ homes.

Opower actually has a relationship with Honeywell for production of a connected thermostat. But in terms of offering utilities a demand response solution, Opower would be in a better position if it didn’t have to rely on a hardware partner and could show utilities that they can get a similar result without the challenges of having a customer base with installed smart thermostats.

Quoting Opower’s SVP of marketing, Stephen Lacey at Greentech Media writes:

Opower is developing its own smart thermostat in partnership with Honeywell. But the company thinks it can get even higher levels of customer participation by eliminating the need for equipment entirely.

“We think going beyond the device-centric mindset will expand engagement,” said Morris. “We wouldn’t be talking about this pilot if we weren’t getting great results.”

Opower’s competitors, like Nest, can automate residents’ power usage via in home hardware thermostats, creating an obvious demand response capability that is easy to quantify and control. But could utilities get away with a behavioral solution?

Nest’s impressive success has shown that there actually is a market for the smart thermostat, which has everyone rushing in, from Honeywell to Comverge. And reports from Nest Labs’ trials in Texas showed an 89 percent participation rate and a 56 percent reduction in air conditioning use during a peak event. That’s very solid data if it can hold up in further deployments.

Still, it’s interesting to see Opower covering its bases and not just relying on its hardware partnerships or its core business of energy savings recommendations.

For my July analysis of the second quarter in cleantech, I wrote:

Nest will have a much larger range of services to offer utilities, and for some time I’ve suspected that Opower was going to have to evolve beyond its simple business model of recommendations via emails, mailed reports, and texts.

It’s good to see Opower thinking in that direction, and that while it’s had great success, it’s going to have to ratchet up the services it can offer utilities, particularly if at its core it remains a brilliant software company, but not a hardware one.

I’m curious to see more data here from Opower on how well behavioral DR is working, but it’s a very attractive solution, given that it leverages smart meter data, mobile connectivity, and data analytics, all tools that already exist. Which means the company may have an easier solution for utilities that don’t want to worry about getting smart thermostats into people’s homes.