The demand response market is poised for significant change in the coming years with the advent of communicating thermostats and other “smart home” technologies. These devices are becoming readily available from big-box retailers, and increasing numbers of consumers are purchasing them to use energy more efficiently and save money. According to IMS Research, shipments of communicating thermostats that consumers can remotely control are projected to quadruple by 2017.

This is good news for utilities. Customer-owned communicating thermostats represent a potential new DR resource that utilities can call upon to curtail peak demand. But today, the market looks completely different. Nearly all mass-market DR programs rely on utility-owned devices. While the trend encouraging the use of customer-supplied thermostats may not reach critical mass for a number of years, utilities can prepare for the bring-your-own-device (BYOD) concept by deploying the right smart grid technology today.

The Role of Customer-Owned Devices

The promise of customer-owned communicating thermostats is that they let utilities expand DR programs to more residential and small-commercial customers without forcing them to directly pay for or have to install the device. Customer ownership reduces the utility share of DR program costs, which can substantially improve overall program cost-effectiveness.

Utility-supplied devices (in the form of either a thermostat or a load control switch) add expense, but are a proven commodity when it comes to reducing demand at critical times. Questions remain as to whether customer thermostats can be counted on to respond in the same reliable manner. In addition, there will continue to be customers who prefer a utility-supplied device, either because they are not technically savvy enough to install and maintain the equipment themselves or because they cannot afford a $200 to $300 communicating thermostat. Consequently, utilities should plan to continue upgrading existing programs to smart grid technology while beginning to integrate customer-owned devices into their DR portfolio. 

Reaching Customer-Owned DR Devices

Many of the new off-the-shelf thermostats communicate primarily over the customer’s home broadband connection. Customers typically use their smartphone or PC to interact with a web-based service to remotely control their thermostat. Utilities can similarly leverage this web-based service to dispatch DR commands to the thermostat. However, integrating with each thermostat vendor’s proprietary interfaces can entail considerable cost and complexity.

A better option is to connect the customer-owned thermostats through a smart meter and a standards-based interface to the utility smart grid network. Using smart meters as the gateway into the home makes it easy for utilities to reliably deliver DR signals to either customer- or utility-owned thermostats. In addition, this smart grid approach ensures that utilities maintain a strong relationship with their customers, mitigating the risk of disintermediation by the thermostat manufacturer or another third party, until a time when manufacturer business models or regulatory structures become more clear.

Revamping Incentives for Customers

This future promise of customer-owned communicating thermostats will mean that utilities can leverage an alternative channel to manage demand at peak times, reduce DR program costs, and improve cost-effectiveness. But how do you get utility customers on board to use the device that they themselves will have purchased?

Utilities can motivate customers to participate in a DR program via rebates on approved thermostats or rewards based on actual load reductions. Smart meters can provide the consumption data that operators need to track responses to DR events, and to properly align customer incentives and payments with the precise number of kilowatts saved. A utility may want to seek approval for new dynamic rates designed specifically to appeal to DR customers who participate using their own thermostat or other devices.

Turning Customer Devices Into a Predictable Resource

Regardless of who owns the field devices, utilities need a demand response management system (DRMS) that maximizes the response to DR events, reduces cost and complexity, increases program effectiveness, and provides tools for optimization of DR assets across programs. A full-featured DRMS solution enables utilities to meet their DR goals, including:

  • Broad customer participation 
  • Predictability of load shed 
  • Achieving target load shed at any given time 
  • Highly accurate, consistent, and fast measurement and verification (M&V) based on near-real-time monitoring and reporting

An effective DRMS can help utilities integrate customer-owned thermostats by learning each device’s individual load shed characteristics and customer behavior, making it possible to shed load predictably and manage demand reduction targets.

Why Engage With Consumerization Initiatives?

In steadily increasing numbers, utility customers want to better control their energy consumption. In the future, many may turn to using off-the-shelf technology to do so. Best practice indicates that offering utility customers choice and flexibility in managing energy resources builds on customer willingness to participate in these programs, and communicating thermostats may be one such enabler in getting additional customers onboard.

But in the meantime, utilities should focus more broadly on standard utility-owned methods. Leveraging a smart grid for demand response allows utilities to manage peak capacity, avoid the need to build new generating facilities, and improve customer satisfaction. Utilities grow their customer relationship value and, in turn, the customers benefit from the ability to actively manage their energy use for greater savings.

If and when we reach the tipping point for the customer-owned device trend, utilities that invest in the right smart grid technology will be able to augment their existing DR programs and more easily integrate consumer devices such as communicating thermostats.


Matthew Smith is Senior Director of Utility Solutions at Silver Spring Networks. The Silver Spring Smart Energy Platform enables a variety of DR offerings including price-based and direct-load control programs. Numerous utilities, including Oklahoma Gas & Electric and Sacramento Municipal Utilities District, have already implemented successful DR programs using Silver Spring’s networking platform.