OhmConnect has quietly grown into a major player in residential behavioral demand response, with a utility-independent platform that’s allowing hundreds of thousands of Californians to get paid for reducing household energy use at critical peak hours.
On Tuesday, the San Francisco-based startup revealed for the first time just how big it has become: 300,000 customers, or “energy sharers,” with a collective 100 megawatts of load they’re able to shed at the push of a properly “game-ified” text or tweet.
OhmConnect also revealed how much it has raised from venture capital investors to get there, announcing an $8.5 million Series B round that brings its total capital raised to about $15 million. The money will be used to expand into new markets, with possibilities including New York and Texas, as well as regions served by grid operators PJM and ISO New England, where OhmConnect is already a registered market participant.
The investment was led by Mike Maples of Floodgate, along with Jennifer Fonstad of Aspect Ventures, Josh Cohen of City Light Capital, Dan Skaff and Kat Taylor of Radicle Impact, Jerry Yang & Jeff Chung of AME Cloud Ventures, Jim Babcock of Cthulhu Ventures, and Mark Pincus.
These seven investors also participated in a previously undisclosed Series A round of close to $6.5 million, CEO Matt Duesterberg said in a Wednesday interview.
This funding also helped OhmConnect bootstrap its unusual business model for turning real-time energy savings into real-world energy market payments — first, get lots of people hooked on payments for energy savings, then, turn that tested customer base into energy market payments.
In describing what OhmConnect planned to do with its $8.5 million investment, Duesterberg said that “a lot of that money will go into providing the rewards, and incentives, as a proving point.”
In other words, during the “OhmHours” when the grid needs a big reduction in energy consumption, OhmConnect will be paying customers in new markets for each kilowatt-hour they reduce against a baseline — even though there’s no market mechanism yet for getting paid for that reduction.
This approach can only work if the mechanisms or markets to cover these financial rewards eventually emerge, of course. But it’s how the bootstrapped startup has worked since its beginnings in California, starting with several thousand early adopters in the San Francisco Bay Area, he said.
“Back when we started OhmConnect, no one was paying us for reductions — and we were paying our users out to show there’s a reliable pathway to get megawatts into the market,” he said. “Then the market created a pathway to get paid.”
In California’s case, this pathway came through getting enough customers enrolled — and getting enough data to prove their reliability — to offer megawatts' worth of demand reduction capacity into the state’s Proxy Demand Resource program run by grid operator CAISO, he said. In the past few years, OhmConnect has also become the biggest participant in the state’s Demand Response Auction Mechanism program, adding another significant revenue stream, he said.
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.
OhmConnect is also paying early-stage customers in Texas, where a statewide smart meter data portal allows it to create baselines to measure rewards, but where grid operator ERCOT doesn’t yet have markets for realizing value from small-scale distributed energy aggregation, he said.
Outside the U.S., the company has a significant number of customers in Ontario, Canada, where it has integrated with grid operator IESO and has access to a province-wide smart meter data platform. It’s also exploring opportunities in Australia, where utilities and regulators are struggling to manage a fast-rising share of wind and solar power.
The company has expanded almost entirely by referrals and word of mouth, he noted, keeping its customer-acquisition costs low. Meanwhile, its “gamification” approach to engaging customers with contests, community-building opportunities and other smartphone-enabled touch points has given it a greater stickiness with customers than has the typical utility demand response effort, he said.
Utilities might also have trouble reaching some of OhmConnect’s more environmentally conscious customers, he noted. The company’s unusual behavioral peak-reduction strategy relies on reminding customers that, at least in California, they’re reducing the energy that will be served by natural-gas peaker plants, which are the dirtiest source of electricity available to the state’s grid. Some environmentally motivated customers let payments build up as positive balances on their OhmConnect accounts, indicating they place a higher value in a high score than in cashing out.
On the other hand, the company has a large contingent of low-income customers using the platform in a more money-centric way, including improving energy efficiency as well as cutting peak usage. Most of the company’s $4 million in payments have been made to customers in California’s Central Valley.
A surprisingly high number of low-income customers also have a smart thermostat or other home energy management device that can automate their responses to OhmHour events, he said. That’s driven in part by partnerships the company has forged with smart home device vendors. OhmConnect sells wirelessly connected “smart plugs,” which allow the remote shutoff of refrigerators, window ACs and other big household loads, for about $10 apiece, compared to a more typical $30 or so for most home automation systems, he said.
Utilities have traditionally relied on demand response programs that automatically shut off people’s air conditioners, pool pumps or other key loads, since they’re more easily managed and measured than the fuzzier results of mass-market behavioral DR. But early efforts like OhmConnect’s — or Opower’s work with Baltimore Gas & Electric and Nest’s work in Southern California — have begun to provide the industry real-world measures of how reliable and effective behavior-driven peak demand reduction can be.
"OhmConnect has a sweet spot for the residential sector, and more importantly, in gaining access to low-income customers who have not traditionally engaged in demand management programs," GTM Research grid edge analyst Elta Kolo noted.
It has also contracted increasing amounts of capacity in every Demand Response Auction Mechanism auction since 2016, she noted. "The results for the second 2019 auction will be announced in early May, so it will be interesting to see how the company's activity evolves in the pilot.”