Nest, the Google-owned smart thermostat and home automation vendor, has deployed more than 11 million devices to date, and it has linked up hundreds of thousands of those device customers in utility energy efficiency and demand response programs. It’s also inked a lot of “Works With Nest” partnerships — integrations with various brands of smart door locks, security cameras, networked lights, smart appliances, smart speakers, and of course, different apps for its home networking ecosystem, now officially part of Google Home.
But Google’s latest Works With Nest partnership with San Francisco-based startup OhmConnect is a little bit different, according to Jeff Hamel, director of energy partnerships at Nest/Google. That’s because it’s giving Nest a partner to break into a demand response market opportunity that’s not based on participating in a utility program. Instead, it will go through OhmConnect.
Nest will be tapping into OhmConnect’s growing roster of customers getting paid to turn down household energy use to help reduce grid peaks. In April, the startup revealed that it had more than 300,000 customers, the vast majority in California, representing a combined 100 megawatts of load reduction capacity.
For its first few years, OhmConnect didn’t have a direct way to turn that aggregated load reduction into revenue. But more recently, it’s been able to tap into the Demand Response Auction Mechanism (DRAM) program to help cover its costs and support its payments.
This pilot project has allowed OhmConnect and other competitors to aggregate 700 megawatts of behind-the-meter peak reduction capacity to date, and get paid both for providing the capacity to utilities and bidding into the energy markets of state grid operator CAISO.
OhmConnect has won a majority of the residential share of DRAM contracts so far, from all three of California investor-owned utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. However, it has not revealed specific figures for customers per utility.
Nest, meanwhile, has already done large-scale demand response projects in Southern California, Hamel noted. That includes participation in Southern California Edison and SDG&E’s peak rewards programs, as well as its 50 megawatts of load reduction for SCE, and additional projects with Southern California Gas, to help deal with the Aliso Canyon natural-gas storage facility crisis.
Nest hasn’t yet developed a similar program with PG&E, he noted, but OhmConnect has a large number of customers in the utility’s territory. “We think this is a unique way to bring demand response to PG&E customers,” said Hamel. “Companies like OhmConnect have positions in these markets, and have unique and innovative business models to capture the capacity value from a DR event.”
In specific terms, the partners will be enabling Nest’s latest thermostat “Eco Temperature” capabilities to interact with OhmConnect’s “OhmHours” events, he said. Eco Temperature reduces energy consumption — from air conditioning during hot afternoons, most often — to customer-approved presets, then automatically adjusts to these energy-saving settings based on certain triggers, unless the customers chooses to override it.
OhmConnect’s “OhmHours” are the text, email and online alerts the startup sends its customers, offering them cash rewards based on the number of kilowatt-hours of energy reduction they can achieve against a baseline, during moments when the state would otherwise have to fire up natural-gas-powered “peaker” plants to cover demand for electricity.
With the integration between the two companies, OhmHour events will now be managed over Nest’s platform as well, and existing Nest customers will be able to sign up for OhmConnect’s rewards via an OAuth-enabled (open authorization) online signup process, he said. “I think we have a lot of overlapping customers. OhmConnect has customers who own Nest thermostats as well,” he said.
At the same time, partnering with OhmConnect can reduce the cost of a new Nest thermostat, by adding the startup’s payments to the existing utility rebates, according to Mike Hanson, OhmConnect’s head of partnerships. "With PG&E, it’s $50 for energy efficiency, $50 for automated demand response, and an OhmConnect incentive of $50 to participate,” he said, representing 60 percent of Nest’s current $249 retail price.
OhmConnect announced an $8.5 million Series B investment in April, and revealed a previously undisclosed $6.5 million Series A round, bringing its total capital raised to date to $15 million. Investors including Mike Maples of Floodgate, Jennifer Fonstad of Aspect Ventures, Josh Cohen of City Light Capital, Dan Skaff and Kat Taylor of Radicle Impact, Jerry Yang and Jeff Chung of AME Cloud Ventures, Jim Babcock of Cthulhu Ventures, and Zynga co-founder Mark Pincus.
OhmConnect CEO Matt Duesterberg noted in April that a significant share of the new funding will “go into providing the rewards and incentives as a proving point,” indicating that the company is still subsidizing the costs of paying its customers for their participation.
OhmConnect calculates that it has paid its customers about $4 million in cash-back offers and other incentives to date, with $2 million of that coming in 2017 alone, he said. That figure represents the 80 percent share of all savings the company promises its customers, with the remaining 20 percent going to OhmConnect.
“To be fair, we are still subsidizing some of the payments to date, in preparation for this year,” including the company’s new funding round and expansion, he said. But in terms of the share of payments now being covered by real-world market revenues, “it’s pretty close,” he said.
Nest has partnered outside of utility programs before, working with smart thermostat vendor EnergyHub in a 2016 DRAM bid, as well as in programs in Texas's retail market.