Google and Nest

Recently Google announced the purchase of Nest, a company that makes "smart" thermostats. Why would Google pay such a handsome price ($3.2 billion) for something as prosaic as thermostats? In short, because these devices may represent the single largest untapped energy management opportunity available -- something that many utilities probably would gladly pay for. Not to mention, smart thermostats also provide a way to bring energy management inside the home.

What makes a Nest thermostat smart?

  1. You can connect it to the Internet via your in-home wi-fi network.
  2. It learns. A Nest thermostat learns your schedule and can program itself. After you install Nest, it'll ask you a few basic questions. After that, the thermostat will optimize itself for your system and start learning from your temperature changes and occupancy patterns.
  3. It can go where you go. A Nest thermostat can be monitored and controlled from your smartphone.
  4. It produces reports you can understand and use. Nest sells more than just a thermostat device; you're also buying access to data analytics. Every day, computers at Nest headquarters process terabytes of data gathered from thermostats, and produces smart operating schedules and consumer-friendly energy usage reports for each user.
  5. Nest pays for itself. According to Nest, most users of their thermostats save $200 per year -- without even thinking about it ("set and forget" convenience). With a $250 up-front cost, the payback is just over one year. Not bad for a do-it-yourself installation.

Nest is new, but residential energy efficiency is not

Residential energy efficiency programs go back to the 1970s, when former UC Berkeley physicist and California Energy Commissioner Art Rosenfeld first began touting their benefits. Over time, standards to increase appliance efficiency, replace incandescent light bulbs with compact fluorescents, and enhance building window and insulation performance have achieved amazing results. A recent book -- Energy Efficiency: Towards the End of Demand Growth (I wrote one chapter) -- examines the implications of these programs.

Now that our refrigerators use a fraction of the power they once did, and our buildings maintain comfortable temperatures much more easily, the next trend in residential energy efficiency is consumer behavior. By managing how energy-consuming devices are used, we can save still more energy, and also enhance the reliability and efficiency of the power grid. According to the U.S. Dept. of Energy, thermostats control 47.7% of home energy usage, including both electricity and gas -- which can yield average savings of over $1000 per year, per household.

Last spring Nest announced Nest Energy Services, which are effectively demand response programs conducted in partnership with four U.S. utilities: Reliant, Green Mountain Energy, Austin Energy and Southern California Edison.

Rush Hour Rewards helps shave demand during system peak hours via automated control of participating customers' home HVAC. However, unlike most conventional utility-operated demand response programs, homeowners can still adjust their thermostat and resume full control during "rush hours" as desired.

Seasonal Savings is available during summer and winter to customers with both home heating and air conditioning. This program makes slow, subtle adjustments to your home temperature (taking into account everything your Nest thermostat has learned about your preferences and occupancy patterns) in ways that help control peak system demand. According to Nest, field trial participants used 5-10% less heating and cooling, and 80% said they'd keep using the adjusted schedules after the Seasonal Savings period ended.

The benefits of home energy efficiency are even greater for utility customers on time-of-use rates for electricity -- an option available to most customers in California, Arizona, Texas, and Oklahoma. A bit of pre-cooling before the afternoon peak period, plus lower consumption during the peak hours increases savings even more. And, of course, residential demand response helps curb system-wide peak demand, which improves the overall efficiency and reliability of the power grid, as well as reducing greenhouse gas emissions from utility power plants.

This theory is all good -- and it's been demonstrated to work in practice, as well. In fact, I have enjoyed using my Nest thermostat at home for close to two years now.