More than five years after smart thermostats were introduced as an easy-to-use alternative to the current programmable models, manufacturers are reporting triple-digit sales increases. The thermostats are pitched as the next “it” device and a revolutionary step in getting households to better manage their electricity use.
Parks Associates, a Dallas market research firm, estimates about 1 in 10 U.S. homes with a broadband connection now own a smart thermostat. That has driven what is now an $86-million-a-year global market, which may grow to $1.4 billion by 2020, according to a report published late last year by Navigant Research.
“Six (million) to 8 million thermostats are sold annually, and in the future a larger and larger portion of those are going to be smart,” said Tom Kerber, director of energy research for Parks Associates. “Think about automatic door locks. They used to be only on Cadillacs. But it moved down to the lower-tier cars. And now you can’t buy a car without automatic locks.”
With more than two dozen models available, smart thermostats vary in features. But the basic principle is a wall-mounted thermostat that, through sensors and algorithms, learns the patterns of a home’s occupants to cut down on wasteful heating and cooling when no one’s there.
Add user-friendly interfaces that can be controlled via smartphone and deals with utilities to automatically adjust thermostats in power shortages, and the devices are purported to reduce electricity bills by as much as 20 percent.
While adoption has yet to hit critical mass, there is plenty of speculation about what widespread adoption would mean for the power grid.
In Texas, during the hottest part of a summer day, air conditioning can double the electrical load on the grid, straining power plants and potentially leading to rolling blackouts. Getting households to participate in organized cutbacks in such times, as industrial plants and big-box stores do, has proved difficult by virtue of the sheer number of customers that would be involved.
But the devices, if coordinated by utilities, could be ordered to raise the thermostats of willing customers en masse.
NRG Energy already has such a program on a limited scale with manufacturer Nest. CPS Energy in San Antonio has distributed similar power-management devices to more than 15,000 customers willing to let the temperatures in their homes go up a few degrees in shortages. One day last August, CPS shed more than 21 megawatts through the program, enough to power more than 6,000 U.S. homes on an average day.
“There are a lot of success stories out there on residential demand-response, mostly in the Northeast and California,” said Paul Wattles, senior analyst with the Electric Reliability Council of Texas, the state’s grid operator. “It’s something we’re very interested in. That’s where the megawatts are.”
Probably the best-known device is Nest. Developed by two former Apple executives, Nest was introduced in 2011 at the jaw-dropping price of $400. Some traditional thermostats sell for less than $50.
Nest has since lowered its price to $250, and is estimated to sell about 50,000 units a month, according to Forrester Research.
Its simple design and functionality have proven a big hit with users – not to mention piqued the interest of Google Inc., which bought Nest, based in Palo Alto, Calif., for $3.2 billion in January.
“Before, with the old thermostat, I had to write stuff down and remember what I did the previous day in order to program it,” said Dan Sanchez, a software developer in Prosper, Texas.
The Nest thermostat “has worked really good so far. At first we let it learn our habits, and when we leave the house it doesn’t keep the system on as much. And if you’re going to be home early, you can use the iPhone app to turn it on before you come back home.”
None of the manufacturers would disclose sales data. But analysts say other companies leading the charge are Canadian brand Ecobee and Honeywell, the giant of the thermostat business.
Competition to get smart thermostats in homes is fierce. In Texas, for example, Honeywell and Nest have signed exclusive deals with electricity retailers Direct Energy and Reliant, respectively, to give consumers free devices in exchange for signing two-year power contracts.
In 2012, Honeywell sued Nest on patent infringement, claiming the startup stole some of its technology and the design of a shower thermostat produced by Kohler. Nest has denied the allegations, and the case is awaiting trial in federal court in New Jersey.
For power retailers, the devices offer an opportunity to better manage power loads that can get costly if they fail to forecast demand correctly. Plus, executives are keen to connect with customers they have struggled to keep since deregulation a decade ago.
At Direct Energy, Adam Miller, senior director of innovation, has a ready list of ideas along those lines. Among them are rewarding customers who use less power on summer afternoons and linking thermostats to smartphones so they know when you’re close to home.
“Our view for residential is the smart thermostat is just the first step,” Miller said.