Nest’s smart thermostats are a device for the upscale and energy-aware consumer. But they’re also a resource for grid stability -- when there are enough of them out there to make a difference.

In Southern California, where the Aliso Canyon emergency is threatening to cause blackouts next summer, Nest believes it can get 50,000 of them together to help keep the lights on.

Nest’s new deal with partner Southern California Edison was announced last month as part of the utility’s rushed response to the shutdown of the Aliso Canyon natural-gas storage facility. It calls for Nest to deliver about 50 megawatts, or 1 kilowatt per home, in reliable load reduction across a stretch of Southern California grid that may run short of power during hot afternoons next summer.

This is Nest’s biggest demand response contract so far, but it’s not being built from scratch. “We’ll be tapping our existing installed base to provide immediate relief,” said Ben Bixby, energy businesses director for the Alphabet (Google)-owned company, said in an interview last week.

Bixby wouldn’t say how many customers Nest already had in the areas SCE is targeting. However, he agreed that “50,000 households enrolled in particular geographical bounds is certainly an ambitious goal.”

Nest and SCE will also be spending money to seek out new customers, for “what remains a very attractive offer to give households an opportunity to be part of the solution,” he said.

That attractive offer includes a boost in customer incentives for signing up for Nest’s Rush Hour Rewards program, which it’s been running as part of Southern California Edison’s Peak Time Rebate (PTR) demand response program since 2013. Next summer’s program is offering $125 upfront, as well as up to $60 in utility bill rebates over the course of the year. Add the $130 to $145 a year that Nest customers typically save on their utility bills, and for a $249 Nest thermostat, “You can pay back the cost of the device within a year,” said Bixby.

Southern California Edison has been fast-tracking its Aliso Canyon-related procurements under a California Public Utilities Commission decision (PDF) that allows the contracts to be paid out through existing programs. For demand response, the CPUC authorized the utility to spend an additional $2.25 million to expand its peak-time rebate program, including an additional $1.65 million for programmable communicating thermostat rebates for customers that enroll in its direct load control program.

Bixby declined to discuss financial details of the contract, or whether this additional spending authorized by the CPUC might be part of Nest’s financial compensation. “The customers...who are putting devices on their wall and getting engaged, they’re paid to be in the program,” he said. “Nest is, of course, a service provider, enabling that -- and we’re also paid for rendering a service.”

SCE has already contracted for about 50 megawatts of energy storage as part of its response to Aliso Canyon, which was declared an emergency by Gov. Jerry Brown in January. The Aliso Canyon facility serves power plants providing nearly 10,000 megawatts for the Los Angeles Basin, most of which are called in to provide electricity on hot days or during power outages. But it's been nearly completely shut down in response to a catastrophic leak, which could leave the region short of fuel this summer.

The utility has also been seeking solar PV and demand response that can be up and running by next summer to provide generation and load reduction during hot afternoons. Air conditioning drives electricity demand at these times, and residential AC is going to be Nest’s primary target for load reduction under the SCE contract. That means that by necessity, it will be asking people to endure slightly higher temperatures -- and allowing anyone to opt out of participating on a whim.

Finding the line between asking too little of your customers and driving them away by over-asking has always been a challenge for residential air conditioning-based demand response. "The two different schools of thought are, keep them comfortable, and keep them in control,” said Bixby, who led the team at Nest acquisition MyEnergy that developed the data analytics used in its process.  

Nest starts out by analyzing each home’s typical heating and cooling patterns. It takes some time for a new thermostat to learn its home and users. But within a month or so, Nest can start putting that data to use to shave heating costs by about 10 percent to 12 percent and cooling costs by about 15 percent, he said.

That data also plays into its Rush Hour Rewards program. Each thermostat can learn how to precool homes with non-peak energy in advance of hot afternoons, for example, or adjust temperature settings based on when people get home from work. Having a large pool of homes to work with allows it to smooth out the inevitable unexpected spikes in individual home energy consumption, or the customers who choose to opt out for whatever reason.

Importantly, it does all of its work without the homeowner needing to lift a finger, unless it’s to opt out of the day’s event -- something that could cost them in utility payments. Nest cautions against an opt-out with a “speed bump warning” sent to the customer's smartphone, said Bixby.

“Leveraging the law of large numbers allows us to keep customers comfortable and to modulate intelligently,” he added." A typical home can yield from 0.7 to 1.2 kilowatts of load reduction by shutting off its AC compressor, but it can’t leave it turned off for too long. By cycling shutdown orders throughout its fleet of homes, Nest can ask four homes to contribute 15 minutes apiece, rather than one home having to suffer through an hour of no air conditioning.

In that sense, Nest’s new deal could be seen as a replacement for a power plant, at much lower cost -- an equation that’s attractive to Nest, of course, but also to utilities that have the financial incentive to consider this distributed energy alternative.

“This is clearly a very cost-effective way to procure capacity on the schedule that capacity is needed,” Bixby said. “You’re enabling equipment to go onto the grid, and you’re anticipating you’ll be able to leverage that equipment over a period of time,” he said. That’s not the way that utilities have traditionally looked at remote-control thermostats, but in a state that’s looking at ways to incorporate DERs into grid planning and operations, it’s starting to become one.