One click away: Your home’s thermostat can save energy and the grid

Megan Pell,¹ a Grand Rapids, Michigan-based financial analyst, had never put much thought into how the electricity grid works when she received a letter from her energy company in early 2021, asking her if she wanted to participate in its Smart Thermostat Program. Under the program, the utility would dial up her Nest Thermostat by a few degrees for a few hours during the hottest days of the year when energy demand peaks. That process, known as demand response in the energy industry, in aggregate allows utilities to stabilize the grid and prevents the need to turn on costly and often more polluting power plants during times when electricity demand is high.

“It seemed like such a small and simple thing I could do for the environment. We only have one planet after all, and this seemed like a good idea,” Pell recalled.

As a growing number of heating and cooling systems, vehicles and factories are being converted to electric power in an effort to combat climate change, global electricity demand is forecasted to increase by up to three-quarters by 2050. By 2030, the US will need to add enough new power generation capacity to supply over 200 GW of peak demand, the equivalent of more than 490 million photovoltaic panels, or approximately 62,000 utility-scale wind turbines.

A large portion of the added electric capacity is expected to come from renewables, such as wind and solar — intermittent energy sources whose availability can fluctuate, making it harder for electricity providers to rely on them during peak demand periods. In addition, electricity providers have to contend with more extreme weather patterns, such as blistering summer and severe winter demand peaks, which risk straining the grid and causing power outages.

Those challenges are prompting more utilities to turn to demand response initiatives to soften peaks and save money, often with the help of smart thermostats. The US Department of Energy has made an “urgent call” to accelerate that rollout, asking utilities and the private sector to simplify the enrollment process and provide rebates to attract consumers.

The impact of more than one million actively enrolled Nest Rush Hour Rewards customers

As of the end of 2023, more than 110 utilities across the US and Canada have partnered with Google Nest to provide convenient demand response solutions to over one million actively enrolled customers through Nest’s Rush Hour Rewards program during both the summer and winter season. Many of those utilities offer rebates or incentives for customers to enroll and stay in the programs, aware of the long-term benefits demand response initiatives provide.

When California’s power grid was strained to the limit in the midst of a searing heat wave in 2022, local consumers’ willingness to cut back on energy consumption staved off rolling blackouts and a grid collapse. Rush Hour Rewards participants in the state did their part, contributing 75 MW of peak reduction capacity to the state’s grid — the equivalent of powering 7.5 million LED bulbs.

Even absent of Rush Hour Rewards, Nest Thermostats have helped customers cumulatively save more than 113 billion kWh of energy between 2011 and 2022² — more than double Portugal’s annual electricity consumption.³ Google has also developed a new way to temporarily reduce power consumption at its global data centers when there is high stress on local power grids by shifting some non-urgent tasks to other times and locations.

Having participated in the demand response program of her Michigan-based utility, Consumers Energy, for three summers, financial analyst Pell is convinced of its success. Her thermostat notifies her a day ahead of an expected peak event, and automatically begins pre-cooling her house a few hours before the temperature on her Nest Thermostat is increased by up to 4 degrees F (2.2 degrees C) during the demand peak. Pell said she never felt uncomfortable during the roughly three events she experienced on average during each summer since enrolling in the program. Google Nest customers can adjust the temperature at any time should they be uncomfortable.

Pell’s experience is echoed by Mark Hackbarth,¹ a Midland, Michigan-based teacher who said he was motivated to join Consumers Energy’s program by the prospect of saving energy and keeping the grid functional. Hackbarth said the few hours of utility control over his thermostat were a “reasonable ask” by the energy company that went largely unnoticed by him and his family.

That experience reflects the findings of a large-scale Google-led survey among more than 3,700 US and Canadian smart thermostat owners in May 2023, which showed that potential customers often expect demand response events to occur more frequently and with a greater range of temperature adjustment than they actually do.

While Consumers Energy offers customers joining the program a $100 incentive during enrollment, as well as $25 in pre-paid credit cards at the end of each summer season,⁴ Pell and Hackbarth said they would stick with the program even without incentives.

That sentiment is supported by the Google-led survey, which showed that among those with higher care for the environment (the majority of smart thermostat owners), financial incentives did not impact demand response enrollment decisions. Nevertheless, only a small percentage of smart thermostat owners are currently enrolled in such programs. When asked about a hypothetical demand response program, 80% of survey respondents said they would sign up, suggesting a largely untapped opportunity to increase awareness around demand response programs and a further simplification of the enrollment process. Having neighbors, friends, and family enroll, offering a minimum enrollment incentive of $50, and emphasizing home energy savings potentials were key to attracting participants, the survey showed.

For Pell, joining the Smart Thermostat Program also increased her knowledge of the energy system, including the higher electricity costs utilities generally charge during peak demand periods to discourage energy consumption.

“I understood that doing energy-intensive things, such as doing the laundry or running the dishwasher, puts extra stress on the grid. So now I’m doing those things either first thing in the morning or at night. I never realized that before this program,” Pell said.

Lower energy bills & grid cost savings

Consumers Energy found that Google Nest customers enrolled in its demand response program in 2020 had saved an average of 0.9 KW per event,⁵ including the thermostat’s automated pre- and post-event cooling periods. That is in line with findings by five other US utility companies between 2020 and 2022, resulting in average savings of 1.06 KW per event.⁶

Smart thermostats, electric vehicles, appliances, batteries, solar arrays, and other distributed energy resources are often referred to as components of “virtual power plants” that can be remotely managed to meet grid needs. Virtual power plants are forecast to reduce peak demand in the US by 60 GW by 2030, and up to a staggering 200 GW by 2050 — roughly the equivalent of Brazil’s entire installed electricity generation capacity in operation in 2023.

Virtual power plants are estimated to have the potential to help reduce annual US power sector expenditures by $17 billion in 2030. Investing in virtual power plants can provide utilities with adequate resources at only 40% of the net cost of a gas peaker plant, and 60% the net cost of a battery.

Already today, consumers benefit from those utility savings.

North Carolina-based Duke Energy, which serves 8.2 million customers in North Carolina, South Carolina, Florida, Indiana, Ohio, and Kentucky, said that for every dollar it invests in demand response programs, its customers will see $2 to $3 in savings.

“By having more people sign up for demand response programs, we can avoid having to build out much more expensive traditional resources, keep the grid stable during emergencies that pop up, and drive affordability for everybody connected to the network,” said Lon Huber, Duke Energy’s Senior Vice President, Pricing & Customer Solutions.

Duke Energy mainly focuses its demand response program on balancing demand peaks during the winter months due to its higher share of electric heat compared to other utilities. Having launched its first demand response programs more than 40 years ago, Duke Energy today manages over one million connected devices, with 93,000 of these being thermostats. Huber said their share has grown rapidly since becoming available some four years ago, adding that the utility saw a lot of growth potential in them. Duke Energy, which owns 50 GW of energy capacity, said demand response programs can contribute 2400 MW in reduction capacity to its utilities this winter.

Consumers were becoming increasingly aware of the challenges posed to the grid, Huber said, adding that utilities relied on partners like Nest to offer a convenient way to enroll customers and notify them of upcoming peak events.

Driving emissions reductions, saving billions of dollars

While smart thermostat providers like Google Nest communicate rush hour events directly to consumers, utilities generally get in touch with companies that help them manage virtual power plants to implement demand response events. Those companies function as switchboards between the utilities and the providers of connected devices to aggregate and streamline the management of millions of end users.

Increasing the reach and scale of residential demand response programs also stands to have larger environmental benefits, with residential building and electricity usage driving 19% of energy-related carbon emissions in the United States.

To respond to large demand peaks, electricity providers frequently turn to fossil fuel-fired power plants, such as coal and gas whose output can be quickly ramped up. Two-thirds of those air-polluting fossil fuel peaker plants in the US are located near communities with a higher percentage of low-income households than the US average, suggesting that increased demand response programs could also provide equity and climate justice benefits.

Shifting demand from peak hours to off-peak hours served by wind, solar, or nuclear power sources can further increase the attractiveness of clean energy investments. While measuring the exact emissions benefits of demand response programs is complicated, a 2023 study valued the additional societal benefit of a 60 GW virtual power plant at $20 billion over a 10-year period, assigning a monetary value to greenhouse gas emissions avoidance and resilience.

Nest Thermostat owners in the continental US keen to further reduce their environmental impact can take advantage of Nest Renew’s Energy Shift⁷ feature, which forecasts local power grid emissions and identifies opportunities where heating or cooling a home slightly earlier or later would mean taking advantage of cleaner energy. These small actions add up; as of December 2022, Google estimates that Energy Shift has already helped Nest Renew users⁸ collectively prioritize cleaner energy usage for more than 110 million hours.

For Duke Energy’s Huber, current demand response programs only scratch the surface of what is possible. The utility is currently working on pilot programs that would expand demand response, including daily optimizations. “Making small daily adjustments of one or even just half a degree does not impact the customer, but can yield huge impacts in the aggregate,” he said.