The new software announced Tuesday by Nest Labs, the Alphabet-owned smart thermostat maker whose devices are appearing in more and more homes, may sound kind of wonky at first. In fact, it opens the door to a pretty profound change in how we use electricity.
Called “Time of Savings,” the program will allow Nest thermostats installed in key U.S. regions to learn when their owners are participating in what is called a time-of-use electricity plan. In these plans, which are greatly favored by economists, people actually pay more for electricity at key times when it is in greater demand (say, the evening), but less at times of lower demand (which is most times). In effect, consumers become economic actors with a reason to make a rational choice about how and when they use electricity.
It’s an arrangement much closer to how wholesale electricity markets work anyway, but one that residential customers have largely been shielded from. Until now, that is.
California has announced that it will be going to default time-of-use rates in 2019. Other states and utilities currently offer optional plans. Nest, in partnership with SolarCity, will be offering Time of Savings in California, New York and Arizona, says Praveen Subramani, head of energy products for Nest – all states where you can already opt for time-of-use rates.
In this arrangement, you will get a free Nest thermostat with Time of Savings software if you go with SolarCity in these states, and if you are part of a time-of-use plan.
But ultimately, the market is potentially far broader, says Subramani, as more and more states and utilities put in place such systems.
“It’s a shift in the residential space for how people are interacting with energy,” says Subramani. “So the advantage of Time of Savings is that it helps our customers manage time of use rate plans, and not worry about it. Nest can make all the magic happen in the background without making customers deal with the rates on a daily or seasonal basis.”
A Nest thermostat equipped with Time of Savings software will display a green gear icon with a dollar sign in the middle at times when higher electricity rates are in effect, thus signaling to its owner to go and turn a bunch of stuff down. But it will also do more than that. The thermostat may, for instance, subtly downshift the air conditioning during the high demand and high price period.
Having your thermostat do this for you, rather than having to do it yourself, is the key breakthrough. The problem with time-of-use rates is that, while economists think they’ll make electricity markets function more efficiently, they raise the possibility that an unknowing customer will rack up huge charges because of, say, an unfortunate decision to charge their electric vehicle during peak price hours.
But the more these decisions are automated in our “smart homes,” the more easily they can integrate seamlessly into our routines and patterns. And this matters not only with Nest, but also as products from other smart thermostat makers, like ecobee and Honeywell, also proliferate.
And time-of-use pricing can save people money — but also because it can be good for the environment. For instance, if enough people shift away from using a lot of electricity at times of peak demand (because they know that it will cost more), then power companies may not have to build or run so-called “peaker plants” that are fired up for those few moments during the year, usually on hot summer days, when electricity demand skyrockets. That not only means less cost, but also less emissions.
The pairing of Nest with SolarCity on this project is also intriguing. Customers who install solar generate their own electricity, but do so mostly during the sunny hours of the day — which tend not to be peak demand hours. Those are more as the sun sets and people get home from work even as solar goes offline. So if you’ve got solar and a smart thermostat that’s helping you with your time-of-use rate, then you can generate your own power during the day, use it for functions like heating or cooling, and then avoid using it until it’s cheaper again at night.
For all of these reasons, Nest’s new innovation — although only available for a select group of customers so far — seems likely to be riding a wave of change in the electricity sector.
When it comes to time-of-use rates, “the market is absolutely growing,” says Subramani.
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