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Looking for the DER ‘holy grail’ — Smart thermostats outnumber batteries and deliver similar benefits at a fraction of the cost

Editorial note: The following blog is a guest post. The views expressed are those of the author and do not reflect the views or policies of the Smart Electric Power Alliance (SEPA) or its Board of Directors.

Battery storage has long been viewed as the “holy grail” for electricity systems that are now integrating increasing amounts of distributed energy resources (DERs), such as solar and electric vehicles. Many hold out particular hope for residential batteries because of their ability to solve problems for both consumers and the electric grid.

A few years ago, the Rocky Mountain Institute published a seminal report outlining 13 services that residential batteries can provide to customers, utilities and grid operators. Among the most prominent are increased photovoltaic (PV) self-consumption when batteries are paired with solar, backup power, energy arbitrage, grid support, and the potential to defer or avoid utility investments in generation and distribution infrastructure.

However, batteries are an expensive proposition for most households; even with the recent explosive growth of residential storage, it remains a niche product. Smart thermostats, on the other hand, have by far the highest market penetration of any DER — an estimated 13 percent across North America as of the end of 2017, according to Parks Associates. Further, what many do not realize is that a smart thermostat can provide many of the benefits of residential batteries, both to consumers and to the grid, at a tiny fraction of the cost.

Simply put, with a smart thermostat, the home itself can become a battery. For example, cooling a house from 75 degrees  to 73 degrees on a hot summer day “charges” the battery, drawing power from the grid in excess of what would be needed to remain at 75 degrees. If the heating, ventilation and air conditioning (HVAC) system is then turned off, allowing the house to gradually return to 75, the battery has been “discharged,” with power consumption reduced during the warming period.

Historically, however, HVAC-based demand management has had two major limitations that prevented the realization of this potential. First, the functionality has been limited to turning the system off for timed intervals, allowing for no customization. Second, taking control of a household’s HVAC system has had a significant impact on customer comfort, which has limited the use of the resource to just a few times per year, during periods of exceptionally high peak demand.

The emergence of smart thermostats partially solved both of these problems. With the ability to remotely modulate a home’s set temperature throughout the day, these devices both allow the HVAC system to be managed more precisely and prevent uncomfortable or drastic temperature swings.

But offering a real alternative to residential batteries requires even more.


Optimizing a smart thermostat

A home can only become a true grid resource when the right optimization software is layered on top of a smart thermostat, allowing for customization to ensure the most efficient and cost-effective operation of the building’s energy systems.

Specifically, for smart thermostats, optimization software leverages three key innovations:

  • First, it expands the range of criteria that can be used to govern an HVAC system’s operation. A smart thermostat on its own can only modulate for a given set temperature. With the right software, you can use any input, as in the examples described below, all while maintaining customer comfort.
  • Second, it uses advanced knowledge of how a building’s temperature changes, particularly based on the energy stored in a house’s own mass, as well as the temperature that makes the occupants comfortable.
  • Third, it continually adapts as it takes in information on occupants’ behavior, creating an individualized model of each home — and each household’s comfort preferences — allowing for the identification of all the load available for shifting, as well as creating a unique daily plan for each home.

If used for traditional demand response, such software can double the savings available from a given home. The changes in indoor temperature are so small that most occupants won’t know the difference.


Benefits for the consumer and the grid

But optimization software also opens up possibilities for many of the consumer and grid services that excite so many about residential batteries.

For customers, the ability to manage when power is drawn — from a rooftop solar array or the grid — can minimize their bill under a time-of-use rate (where the energy price varies over the day) or maximize the amount of solar generation consumed within the house. For the utility, the ability to minimize demand during peak periods can relieve grid congestion, or defer the need for additional transmission, distribution or generation. For a grid operator or wholesale market participant, the ability to shift load by hours or even minutes enables energy arbitrage — using the home as a virtual battery to store energy when prices are low and discharge when prices are high. Similarly, it can allow a home to be used to store reserve capacity.

To illustrate this, we at Tendril compared the expected performance of our demand management solution, Orchestrated Energy, to a Powerwall battery for a representative house in Texas — where everything, including energy consumption, really is bigger. When both were set up to minimize the house’s electric bill through energy arbitrage, we found that Orchestrated Energy provided 91 percent of the battery’s annual savings.

The smart thermostat shifted almost as much load as the battery and simultaneously lowered overall energy consumption by cooling the home more efficiently. The battery, on the other hand, increased overall consumption because its chemical technology loses energy in the process of charging and discharging.

This comparison is admittedly limited. It assumes that the battery sells no power back to the grid and is used entirely for energy arbitrage. Further, batteries can provide two types of services that thermostats cannot. A thermostat cannot provide backup power to a customer, nor can it offer grid-support services that rely on extremely rapid response, such as frequency regulation or voltage support. However, these shortcomings are offset by smart thermostats’ largest advantage: their price.


Maximum value, minimum cost

The list price for a residential battery, including its supporting hardware, typically exceeds $5,000. Installation can add thousands more. By contrast, leading smart thermostats cost $100-$200, and can often be installed without professional help.

Batteries will undoubtedly play an important role in the transition of our energy system to a cleaner, more distributed future. Indeed, our software will soon work with batteries as well as smart thermostats, so that we will be able to help utilities and customers get maximum value from batteries when they arrive in large numbers. But batteries aren’t the only option for leveraging residential demand management to save consumers money, optimize solar generation, or provide grid services.

Comparing smart thermostats to batteries in this way speaks to a larger issue as utilities, policymakers and others in the industry consider how best to promote the growth and use of DERs on the electric grid while fully leveraging the resources and investments of all parties. Just as important as a technology’s functionality is its ease of consumer adoption.

Smart thermostats are a gateway technology, meeting consumers where they are as a first step to build meaningful momentum.

Sam Shrank is Demand Management Solutions and Finance Lead at Tendril. He can be reached at