OhmConnect bets $100M that free smart thermostats can prevent summer blackouts in California

OhmConnect has pledged to give away up to 1 million smart thermostats over the next few months to combat the risk of summer grid emergencies in California. The move could be seen as a massive public relations gambit, complete with a celebrity endorsement from Kristen Bell and contests between cities to enroll the most customers.

But to OhmConnect CEO Cisco DeVries, it’s also a ​“commitment of $100 million in clean energy infrastructure in people’s homes” — a rough estimate of how much it will cost to buy the thermostats.

That’s more than the $80 million in infrastructure funds the San Francisco–based startup raised in December from Sidewalk Infrastructure Partners, the firm backed by Google parent company Alphabet, to help reach its goal of 550 megawatts of load-reduction capacity, up from about 160 megawatts last year from about 160,000 customers.

“This is a big leap, both in terms of numbers of customers and megawatts, and numbers of devices we control, and also in the logistics of getting these devices to customers and connected,” he said in an interview.

And that $100 million to be spent on discounted thermostats from participating companies Google Nest, ecobee and Emerson — or Wi-Fi-connected ​“smart plugs” to control big appliances for homes without central air conditioning — doesn’t include the cash and prizes that OhmConnect gives customers for the electricity reductions they achieve.

“We’re making a giant commitment to the state of California and our customers to support this growth,” DeVries said. ​“That includes putting all of the capital and resources we have to make this work.”

The results could be a grid resource that can be deployed much faster, and at lower cost, than the battery farms and power plant renovations that California regulators have been pushing as the chief tools to prevent a repeat of last August’s grid emergency.

California’s grid is struggling — on both the supply and demand sides

On the evenings of August 14 and 15, 2020, a regionwide heat wave drove up electricity demand beyond the ability of state grid operator CAISO to supply it, forcing it to call for hours-long power outages for hundreds of thousands of customers.

It took an emergency declaration from Gov. Gavin Newsom to enlist every resource available in the state, plus voluntary conservation efforts that added up to 4 gigawatts of grid relief according to CAISO estimates, to prevent further rolling blackouts in August, as well as during another heat wave in September.

Since then, the California Public Utilities Commission has been racing to expedite the deployment of gigawatts of grid-scale batteries, and postponing the closure of natural-gas-fired power plants. Both steps are seen as needed to meet the hours of ​“net peak” demand that arise on hot summer evenings after the state’s ample and growing supply of solar power has faded from the grid.

But recent assessments from the CPUC, CAISO and the California Energy Commission indicate the state still faces the threat of more grid emergencies this summer. An ongoing drought has shrunk the reservoirs that feed its hydropower capacity, and states across the U.S. West also face potential power shortfalls that could limit how much energy California can import to serve its peak needs. The next test of these preparations could come this week, as CAISO prepares for a heat wave expected to bring triple-digit temperatures across California and the Southwest.

Meanwhile, companies including OhmConnect, Tesla, Enel X, Leap, CPower, Voltus and Google Nest have been calling on the CPUC to more aggressively expand the market potential for demand-side resources. Those could be behind-the-meter batteries, electric vehicle chargers and other distributed energy resources, or the flexibility available from residential, commercial, industrial and agricultural electricity loads.

Solar and battery vendors including Sunrun, Sonnen, Stem and Tesla have aggregated behind-the-meter batteries as virtual power plants that can be dispatched to meet grid needs. OhmConnect’s virtual power plant, by constrast, relies on email and text messages asking individuals to cut consumption, along with automated load reductions from Wi-Fi-connected thermostats and smart plugs for major appliances, to shave a couple of kilowatts of electricity use per customer, or even larger reductions when emergencies loom.

This isn’t a unique approach. Utility programs that automatically cut power to air conditioners, pool pumps and other major loads have existed for decades, and more recently smart thermostats and other networked in-home controls have been tapped for utility-directed peak load reduction programs. Companies working for utilities, such as Oracle’s Opower or Uplight, have been able to get customers to reduce power use via energy-saving tips and peak reduction prompts combined with smart thermostats and other controllable devices, a model known as ​“behavioral demand response.”

But OhmConnect is relatively rare in this demand response landscape in taking an approach that lies outside traditional utility and demand-response channels.

“We’re building capacity that allows us to produce megawatts for the grid,” DeVries said. ​“Instead of a peaker power plant, this is a lot of little devices given away to people’s homes.”

From giving away thermostats to building a statewide grid resource

Offering free thermostats is just the first step in getting up to a million homes enlisted in helping to prevent blackouts this summer. OhmConnect has already been giving away free Nest thermostats for about a month, and in late May launched a ​“city challenge” with the mayors of San Jose, Oakland, Fresno and Bakersfield to see which city can most quickly distribute up to 25,000 thermostats.

The rate of signups has fluctuated from a few hundred up to 1,000 per day over that time, DeVries said. ​“We’re working to get thermostats shipped as soon as people sign up, and we’re mostly hitting that.” But, he added, ​“to get to a million, we’ve got to step it up.”

Getting the thermostats installed and connected to OhmConnect’s software platform to orchestrate their collective load-reduction capacity is another challenge. That’s particularly true in the hotter parts of the state, including lower-income parts of the Central Valley or Southern California’s Inland Empire, which ​“haven’t had the penetration of smart devices that, say, Palo Alto” and other wealthier coastal communities have had, he said.

Then there’s the bet on OhmConnect recouping the cost of its investment in its customers. Those customers, in addition to saving an average of $250 to $300 a year on their electricity bills, can win cash and prizes with widely varying values that average out to about $100 or more per customer, DeVries said. Particularly active participants can earn $400 to $500 per year.

OhmConnect must be able to earn enough money back from California’s markets and programs to cover the cost of these rewards. But that’s far from a certainty at present.

In fact, the company lost hundreds of thousands of dollars per day on August 14 and 15 last year, despite its customers achieving a collective 200 megawatt-hours of load reduction during the two-day emergency. That’s because California’s rules for measuring that load reduction rely on baselining methods that compare usage to previous days — including days that were much cooler and thus required significantly less electricity to keep air conditioners running.

California’s demand-response industry has been asking the California Public Utilities Commission to change this baselining methodology to more accurately capture the value of load reduction during hotter-than-usual days. These companies are also asking for other changes to rules they say have slowed their ability to quickly add resources to help reduce peak grid demand.

The CPUC has made some changes to the state’s demand response rules, including an Emergency Load Reduction Program that offers high payments for loads that are shed at a moment’s notice. But it hasn’t yet tackled the more complex challenge of reworking its long-standing demand response rules.

For example, the CPUC still requires all new demand-side resources being bid into the state’s resource adequacy program — the construct that pays in advance for resources to meet future grid demand peaks — to undergo a ​“load impact protocol” process that takes six to nine months to complete.

Marc Monbouquette, U.S. Western regulatory affairs manager for Enel North America, says this process prevents new resources from being called into play on the grid until the year after they’re contracted.

“It’s not a very timely way for aggregators to turn around and respond to emergency procurement orders” like those the CPUC has issued to combat future heat waves, he said.

Betting on the future value of demand-side resources

These regulatory bottlenecks have led to a series of workarounds on the part of community choice aggregators, the city and county entities that serve an increasing portion of California customers’ electricity needs. Efforts such as East Bay Community Energy’s partnership with OhmConnect, or Marin Clean Energy’s new Demand FLEXmarket program, are aimed at getting demand-side resources in play more rapidly.

But it’s not clear that most of the free smart-thermostat-equipped customers OhmConnect will be able to enroll in the next few months will be able to receive a level of compensation that matches what it says is their value for balancing the grid.

“Over the next several years, as we are able to use that to support the grid, we will make that money back — and hopefully a little bit more,” DeVries said. But he conceded that the company’s big push this summer is ​“a bet based on the fact that the state asked for help and we answered that call.”

That’s in keeping with OhmConnect’s roots as a startup that began offering customers rewards back in 2013, well in advance of the development of programs and markets to earn that money back. It has been able to evolve and grow its business model over that time, first with the emergence of the state’s Demand Response Auction Mechanism pilot program that opened markets for distributed energy resources to be paid for resource adequacy, and later by becoming a scheduling coordinator able to bid its resources into the markets of state grid operator CAISO.

But the company has at times tapped the funds it has raised from investors — an amount of equity investment that now stands at a little more than $40 million — to cover the costs of paying customers for load reductions.

DeVries noted that OhmConnect can borrow against the future grid value of the thermostats it’s deploying through its giveaway. It’s also exploring alternatives for financing the portion exceeding its $80 million infrastructure fund from Sidewalk Infrastructure Partners. At the same time, the company is ​“putting everything we have into this. We have no more pockets,” said DeVries.

“As we perform, it gets easier for state agencies to make the changes they need to make,” he continued. Those could include valuing on-demand household load reduction, not just in terms of kilowatt-hours but also for ​“the social value, the carbon value, and the fact that we are hyper-local and don’t use transmission and distribution assets,” he said. ​“We’re making a bet that in the long term, individuals in their homes taking control of their energy will become more valuable.”

(Lead photo by Patrick Haney, CC BY-NC-ND 2.0)