This startup turns electric water heaters into grid batteries

Shifted Energy is tapping water heaters in lower-income communities to create virtual power plants that help balance the grid, starting in Hawaii.
By Jeff St. John

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A contractor installs a Shifted Energy water heater control module in a Hawaiian home
A contractor installs a Shifted Energy water heater control module in a Hawaiian home. (Shifted Energy)

Forest Frizzell, CEO of Shifted Energy, wants to make sure that the rewards from helping his home state of Hawaii move to 100 percent carbon-free electricity don’t just belong to the lucky few who can afford rooftop solar systems and home batteries.

That’s why his startup has built one of the country’s most advanced virtual power plants on a ubiquitous piece of Hawaiian household technology — electric water heaters.

As of last year, Shifted Energy had equipped more than 3,000 households in multifamily condos and apartment buildings on the islands of Oahu and Maui with its cellular-connected smart-water-heater control modules. Those families earn about $3 a month in utility bill credits for allowing Shifted Energy to turn those water heaters on and off to help balance the grid during sudden shifts in wind and solar power supply. This virtual power plant (VPP) offers the utility a collective capacity of up to 2.5 megawatts of fast-responding grid support.

Shifted Energy’s algorithms predict down to the kilowatt-hour just how much electricity each family needs to provide hot water at different hours of the day, giving utility Hawaiian Electric a resource that’s as reliable as a power plant in terms of flexibility and control. And, unlike a power plant, Shifted Energy can also remotely program water heaters to absorb excess solar power when more is being generated than the grid can handle.

The VPP is part of Hawaiian Electric’s Power Partnerships Program, a groundbreaking approach to enlisting customers to help balance island grids that are mandated by state law to run completely on renewable energy by 2045. Other VPPs from solar-plus-battery aggregators Swell and Sunrun are also participating in this program, but Shifted Energy’s water-heater fleet has been providing its second-by-second capabilities at full capacity for more than a year as those solar-battery projects have just been getting up to speed.

We’re more than a water-heater company,” Frizzell emphasized. The same algorithms that Shifted Energy has applied to electric water heaters can be applied to home batteries, electric-vehicle chargers and other household appliances.

But water heaters present a wider opportunity. They are in every home in Hawaii, including low-income housing where the rooftop solar, backup batteries and EV chargers that are the more typical targets for virtual power plants are financially out of reach for most residents. More than nine of out 10 of Shifted Energy’s devices are installed in lower-income multifamily condos and apartments, he said, via a relatively simple process of integrating the company’s cellular-connected control box to a water heater’s control circuits.

With its technology, Shifted Energy has solved, at scale, how to engage in getting frontline [low- and moderate-income] communities to get enrolled and participate in these opportunities,” Frizzell said. Other companies are also using electric water heaters to help utilities control their grids across the U.S. today, but with less sophistication than Shifted Energy brings to the task.

On Monday, Shifted Energy announced a $4.3 million seed investment round co-led by Epic Ventures and Kapor Capital with participating investors Buoyant Ventures, Startup Capital Ventures x SBI Fund, and Hunt Development. It’s the largest investment yet for the startup, which since its 2016 founding has been supported by a $1.8 million investment from Hawaii-based nonprofit investor Elemental Excelerator and grants from the state of Hawaii.

The new funding will help Shifted Energy expand into additional markets in the continental U.S. and Canada, Frizzell said. It will also help the company develop more services for multifamily housing, a particularly challenging environment for energy efficiency, rooftop solar, EV charging and other clean energy technologies.

We can’t move forward with scaling clean energy programs without being more inclusive,” Frizzell said. We have to work with these overlooked families.” 

The magic formula behind water heaters as grid batteries 

Frizzell and co-founder Olin Lagon launched Shifted Energy with these often-overlooked populations in mind. Frizzell, the former head of information technology for utility Hawaii Gas and the city of Honolulu, met Lagon, a native Hawaiian software entrepreneur and veteran of the U.S. Navy and Peace Corps, when both were working with Kanu Hawaii, the state’s largest sustainability nonprofit.

When Hawaii passed the country’s first state-level 100 percent renewable energy law in 2015, Lagon was a member of the board formed to meet that mandate. He realized that many of the ideas for helping Hawaiians manage the clean energy transition wouldn’t be accessible to lower-income residents and people living in multifamily housing.

I could see quite clearly that we were still going to suffer from inequity,” Lagon said. Forest and I said, We’ve got to fix this.’” 

Water heaters were a natural first target, Frizzell said. Almost all water heating in Hawaii is done with electricity, and it tends to be the largest or second-largest power draw in homes.

The thesis for us was to build a software layer that could aggregate those water heaters to provide the same exact grid services that a battery or a solar inverter could provide,” Lagon said. Hawaii was already doing smart-water-heater pilot projects to test this proposition, and Shifted got involved in subsequent pilots.

These pilots — along with the state’s groundbreaking work on grid-integrated solar, batteries and smart inverters — laid the groundwork for what became Hawaiian Electric’s Grid Services Program.

Angie Eide, the now-retired manager of Hawaiian Electric’s customer energy resources programs, explained in a 2022 interview how the utility has structured the Grid Services Program through grid-services purchase agreements. Shifted Energy was one of the first companies to be awarded an agreement with Open Access Technology International (OATI), the Minneapolis-based grid-technology provider that was picked by Hawaiian Electric to be a prime contractor for its new grid-services regime.

In some ways, we were super-fortunate to start with Shifted,” Eide said. We’ve done pilots with them; we know their capabilities.” 

Hawaiian Electric’s program is more complicated than the standard demand-response or VPP program, she pointed out. Typically, participating homes and businesses are called on to reduce power use or inject power into the grid during predetermined hours or when grids are under stress. Hawaiian Electric is so eager for customers to supply grid services of this kind that it’s started paying solar-equipped customers to add batteries that can store power during the day and discharge it after the sun goes down.

But Hawaii, with its solar-saturated grid circuits and fast-shifting weather patterns, also needs much more precise, flexible and fast-acting help from its customers. That’s why its grid-services program pays more money for aggregations like Shifted Energy’s that can respond within seconds to balance the grid — and includes penalties for the aggregators that can’t perform as promised.

Electric water heaters have been remote-controlled to turn off during times of peak grid demands for decades. But they haven’t been tapped for fine-tuned grid responsiveness in the past, Frizzell said. That’s largely because the software and hardware required to understand just how much power thousands of water heaters are using at any moment in time is technically challenging to design and expensive to implement — potentially more complex and costly than the grid services are worth.

Shifted Energy uses cellular-network-connected control units to maintain high-speed communications with its water heaters. The units supply the telemetry we needed to inform machine-learning algorithms to understand how families were using their devices,” Frizzell said.

That machine learning is critical to determining just how much electricity is being used by each water heater, and how much electricity each one can go without before the water in the tank starts getting too cold, he said. That means we don’t get cold-water calls — the customer is happy.”

At the same time, Shifted Energy, OATI and Hawaiian Electric have the data they need to know down to the kilowatt just how much electricity use can be deferred from individual water heaters, different sets of heaters sharing the same grid circuit, and the entirety of the water-heater fleet, at any point in time, he said. That’s vital for hitting the performance targets that Shifted Energy is contracted to meet, he said. We have to be within 10 percent of that forecasted performance. Otherwise, we get hit for liquidated damages.”

Shifted Energy’s machine-learning algorithms can also forecast just how much electricity its water heaters will need, and how much they can defer using, in 15-minute increments up to a week into the future. Our utility clients rely on that,” Lagon said.

The smarter the algorithms, the more information they can discern about the water heaters they’re analyzing, he added — including things that aren’t measured in kilowatts of power. For example, Shifted Energy doesn’t need to measure water temperatures inside the tank; its algorithms can predict those temperatures down to a degree or two based on electricity-usage data.

Shifted Energy’s technology can even detect water-heater leaks, he said. While Lagon declined to detail how it does that — the company has a patent pending on the machine-learning techniques involved — it hasn’t yet misdiagnosed a leak, he said. We’ve had property managers telling us we’re wrong, and then they found the leaks behind the wall.”

A grid asset for the masses 

The fact that Shifted Energy targets water heaters allowed it to deploy its technology in 2020, while battery and solar vendors were struggling with Covid-19 supply-chain disruptions, Frizzell noted. Those supply bottlenecks have slowed deployments for solar-plus-battery VPP operators such as Sunrun, which landed a grid-services contract with OATI in 2019, and Swell, which won a large-scale contract with Hawaiian Electric in 2021.

Both Sunrun and Swell have software that allows them to control the batteries in the homes they’re aggregating to respond to the second-by-second grid fluctuations that Hawaiian Electric’s program is designed to mitigate. An energy resource could be something as obvious as solar PV with an energy storage system,” Jim Laehy, the director at OATI managing its Hawaiian Electric program, said in an August interview. But water heaters have been very effective in providing grid services” as well.

Water heaters can also be used for solar sponging,” Lagon said — soaking up excess solar power and converting it to overheated water that can be brought down to temperatures safe for use in homes via valves that mix in cold water. Hawaii is the first state to actively reward customers for using more power in ways like this as well as for using less of it, but it might not be the last. Absorbing excess power is a service that’s becoming more valuable on power grids that generate a surplus of renewable energy at certain times of the day.

Shifted Energy plans to spend some of its new funding expanding our platform on the renewable-firming side,” Frizzell said, describing the category of services that help integrate clean energy into the grid. We’ve done a really good job with solar, but we want to add wind.”

Frizzell cited the work that Shifted Energy is doing for Nova Scotia Power, the utility serving the Canadian province of the same name, which is rich in wind power. Over the next two winters, Shifted Energy will partner with efficiency provider EfficiencyOne to equip thousands of water heaters to turn on and off to respond to spikes and sags in wind power generation.

Pilot projects with Arizona utilities Arizona Public Service and Tucson Electric Power will test similar solar-soaking and load-shifting capabilities, as well as test Shifted Energy’s machine learning to forecast how load patterns change as more people switch from fossil-fueled to electric heating.

Frizzell expects demand for Shifted Energy’s technology will grow as the tens of billions of dollars in federal tax credits and incentives for home electrification made available by the Inflation Reduction Act start to drive faster adoption of electric heat pumps and heat-pump water heaters. He wants to ensure that residents of economically disadvantaged communities can tap into the grid value of this transformation.

It’s not just the right thing to do,” he said. It makes economic sense to get in front of these frontline communities that have been historically overlooked.” 

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.