By: James Buchanon, Lisa Oram and Chris Brooks
According to independent estimates, heating and cooling systems account for between 30 and 50 percent of a home's yearly energy budget. Because this represents the lion's share of home energy use, the HVAC industry has been an attractive target for attempts to reduce energy consumption, lower utility bills, and ultimately, save the planet.
However, heating and cooling equipment manufacturers -- especially furnaces, boilers, and other heating equipment -- have run into something of a brick wall in terms of wringing out greater operational efficiency. For a number of reasons, there are currently few opportunities to substantially improve the efficiency of the installed base of equipment.
What, then, will be the next great innovation and where will it come from?
The answer to this question is complex and evolving, but according to a number of recent startups, there is ample opportunity to improve how heating and cooling systems are managed. Commonly called "smart" thermostats, new Web-enabled devices with two-way communication are the new frontier.
What Smart Thermostats Are
Simply stated, smart thermostats are capable of collecting data related to the energy usage of the heating and cooling system by tapping into the electric components that signal when a furnace, boiler, or air conditioning unit is running. Data can then be sent to a Web-based management tool -- often referred to as a dashboard -- where the homeowner can use another set of software tools to better manage how the heating and cooling system is operating.
For example, smart thermostats operate in a manner similar to a traditional thermostat in that they allow the homeowner to set a desired temperature and then signal the heating or cooling system to turn on or off in order to maintain that setting.
Beyond that basic function, however, the smart thermostat will -- depending on the brand and its features -- collect data and then transmit it via a wireless Internet connection in the home to a personalized Web portal (e.g. unique webpage) set up for the homeowner. The Web portal acts as a dashboard to display information such as the temperature at which the system is set; indoor and outdoor temperatures; whether the system is cooling, heating or idle; alerts, such as when the system needs maintenance; and more.
From this dashboard, the homeowner can also take certain actions such as setting the temperature; creating a heating/cooling strategy to reflect when the home is occupied, people are out for the day, or are on vacation; enable features that adjust energy use to times when utility rates may be lower; and more.
Since all the energy management is done over the Web, homeowners can adjust their home heating and cooling use while away from home using a laptop or even a handheld device such as a smart phone. And since these devices -- desktop and laptop computers and handhelds -- have larger display screens and can handle more complex software -- they can do far more than a small thermostat with an LED display screen.
There are also applications for smart thermostats beyond helping homeowners better manage their energy usage. For example, what if utility companies could aggregate the information being collected to better manage how they provide energy to homes, and in turn, improve energy usage across the entire grid?
For now, though, the Sierra Club says that smart thermostats will be an important piece of how we reduce energy consumption and estimates that homeowners will save on average $180 or more each year. Others suggest that these savings may be quite a bit more -- as high as $400 to $500 -- and Time Magazine has named smart thermostats one of the best inventions of 2009.
Despite their purported value, smart thermostats have not yet caught on with homeowners. According to Amy Neal, spokesperson for EcoFactor, a recent startup offering an energy management solution centered on the use of smart thermostats, she expects the installation of two-way communicating thermostats to increase as more major home improvement stores get these products on their shelves throughout the year.
The idea of remotely managing and optimizing energy usage is nothing new. A number of industries from large supermarket chains -- where freezers and refrigeration units are turned down automatically at night -- to manufacturing plants, have all successfully used some form of complex energy management system for quite a while. The savings in these applications have been well worth the considerable costs to these companies.
However, when it comes to energy management solutions for individual homes, cost has been the primary reason why smart thermostats have met with limited success.
However, over the years, technology has changed, making smart thermostats far more affordable. Dave Martin, president of Intwine, one of a number of recent smart thermostat startups, says that maturation of the technology includes being able to implant it into a thermostat, reducing the complexity of the enabling communications between various devices, and reducing the cost of connectivity technology.
Additionally, improved technologies at lower costs will increase the range of opportunities for these types of products, says Scott Hublou, co-founder and SVP of products for EcoFactor. "As hardware costs continue to decline and protocols become more standard, there will be greater opportunities to provide home-based broadband services, and energy management is the forefront of that," he says. "There are basically three pillars to where this kind of interconnectivity can provide benefits, which are energy management, home security, and home health, such as a heart monitor that can communicate via broadband to a hospital or doctor."
Smart Thermostats -- Individual Nodes in a Bigger Green Picture
Think of when home computers were first getting their start and there was intense competition between different operating systems -- would everyone use Windows, Apple or some other brand with a unique view? As we have seen, Windows won out in a big way, with significant consequences -- good and bad -- or the future of computing.
Similarly, smart thermostats are in that very beginning phase where it is hard to see exactly what brand and vision will win out. However, it is important to note that all of the companies introducing their version of a smart thermostat believe their product will someday represent a node within the Smart Grid.
According to Alex Q. Huang, PhD., Progress Energy Distinguished Professor at NC State University, the Smart Grid is a term used to describe an emergent set of strategies to enable greater monitoring and management of power usage across whole power grids via interactive and automated coordination between energy suppliers, the networks that transmit energy, the local distributors, and consumers of the power. Within the Smart Grid, one of the more important enabling tools is Smart Meters. These meters operate in much the same way a smart thermostat does -- collects energy usage data from the home and then communicates it to the utility in order to optimize power delivery and for billing.
Smart thermostats represent a node within the Smart Grid because they would enable communication between the heating and cooling system and the grid as a whole (in the future, this data will include 100 percent of the home's energy usage by appliance). For example, says Huang, the smart meter gathers data from a smart thermostat and sends it to a Web server or database that collects and aggregates data for all of the homes on that grid. Individual homeowners can still set the thermostat for a desired temperature, but the energy used to maintain that temperature -- as well as for other energy consuming devices -- is managed by the utility company. And this is done for the entire customer base of the company. The benefit is better management of overall power usage as well as in individual homes for cost and efficiency.
"There are many ways to do this," says Huang, "but right now there is a lot of money from President Obama, from the government, going into two-way communicating smart meters, but there needs to be a device inside the house for it to talk with, which requires a communication architecture. My feeling is that this strategy represents an opportunity to harvest some of the low-hanging fruit of the Smart Grid, which will make it more and more popular."
While there is and will be intense competition among companies to become the standard technology for these meters and thermostats, Huang also believes that the idea of individual, Web-based dashboards for homeowners will be a popular new technology as well. It may especially be the case if consumers perceive a risk to allowing the utility to download data from their home and control their home's energy usage. "The model that may work out the best is one that is consumer oriented," he says. "If you can put something in an iPhone and let the consumer control it, it will have a very big audience of people that already have the basic tools. This will also help avoid the Big Brother issue of having the utility control your home because it enables individual control rather than the utility. The challenge for utilities will be to incentivize the customer and overcome their desire to remain in control of the home device."
It may also be the case that the popularity of smart thermostats could upend the desires of the many startups selling this technology. "The risk to the startups trying to only sell a smart thermostat, rather than one integrated with a larger solution for utilities, is that they rely on selling the device," says Hublou. "Existing thermostat manufacturers such as Honeywell are probably going to want to do this for themselves by partnering with a software provider in order to keep their customers. That's why competing on hardware may be too difficult."
You can't talk about Internet-based communications without also discussing security issues -- could a hacker break into a system and cause harm to utilities and homeowners?
The answer, according to the people we spoke to on this topic, is a qualified yes. According to Huang, a number of organizations are working on issues of security, but given the newness of the technology and its lack of market penetration so far, the concern is somewhat muted.
There is also a relationship between security and where you sit in the food chain. "Security is a much bigger problem for the utility companies, those that operate at a fairly wide scope, than it is for individual homeowners," he says. "For a single home, what is a hacker going to do: turn down your heat? But compared to maintaining the grid and large scale applications of two-way communicating devices, this is where the concern is."
Editor's note: There are security implications at the individual residential level as well -- a hacker could cause serious structural and financial damage to your house if they were able to remotely turn off your heat in the winter. The pipes that carry water around your home depend on the ambient temperature in the house remaining above freezing. If the temperature goes below freezing, your pipes could burst as the water in them expands into ice.
While utilities have formal security protocols they rely on, products designed for home use rely on a mix of protocols that include unique user IDs and encrypted passwords, data encryption for information transmitted via WiFi, additional encryption when it enters the network, and so on.
As could be imagined, managing heating and cooling systems is not the be-all-end-all for smart thermostats. Since most people in the U.S. have either a heating of cooling system or both, they make a natural entry point to managing overall home energy usage. Imagine having a system that could optimize energy usage for all of your large appliances, could understand your power usage patterns for each appliance, and could help you develop efficiency strategies that could save you quite a bit of money.
"There have been a considerable number of products and momentum on the utility side of power management," says Intwine's Martin, referring to management solutions targeted to utilities rather than homeowners, "but our energy management strategy is focused on consumers and bringing to market a personal energy management network of products that can connect into a backend server to offer consumers a one-stop-portal for energy management."
This broadening of scope may be what helps smaller startups such as Intwine and others overcome their natural disadvantage in competing with the established thermostat manufacturers identified by Huang. If they are able to quickly leverage the thermostat into a broader energy management device and build strategic partnerships around this strategy, they may be able to differentiate themselves from larger companies that focus only on heating and cooling.
As Stuart Lombard, CEO of Ecobee, another smart thermostat startup, notes, "With millions of smart meters being rolled out in North America, we see ourselves as being one node within the Smart Grid. Homeowners will not only have a much richer set of data and tools to manage energy usage, but will be able to manage 100 percent of their energy usage rather than the 30 to 50 percent that heating and cooling represents. This includes seeing real-time energy use, energy consumption during various utility rate periods, and the ability to identify energy consumption that is not currently visible to the consumer, to name a few."
Since Ecobee and other startups rely on open source technologies, there is a race to offer an iPhone-like application store where customers can go to find and download new tools that are offered by a wide array of software developers. "Our goal is to publish open APIs [protocols that allow different applications to interact] so that we and others can build applications that tie into our product and all of this will be run from a single personalized Web portal," says Lombard. "We see HVAC as being part of a larger whole that includes your water heater, refrigerator, dishwasher, plug-in electric vehicles, smart meters, and so on, and all of these can all be tied together and managed remotely."
At this point, there are a number of companies attempting to bring to market a successful business strategy based on the use of smart thermostats as an entry point for managing 100 percent of a home's energy use. There is ample evidence that these kinds of systems have proved valuable to businesses, but for a number of reasons, the technology has not yet found its way into the homes of consumers.
However, the perfect storm may be coming together: growing concern about the environment, increased government subsidies for green products, reduced costs for products, and increased cost of raw energy. It seems likely that the value of these devices will very soon become apparent to homeowners. With so many products just coming to market with a variety of strategies, which one will win out?
The answer to that question may tell you how you will be managing your home's energy use in five or ten years.