The Intersection of the Smart Grid and the Web

1. The Intersection of the Smart Grid and the Web Pilot Experiences January, 2009

2. Overview • Direct Energy – Who are you? • Emerging Market Observations – Is the world changing? • Meter data plus the web – The killer app? • Compilation of pilot experiences

3. Direct Energy, LP • 5 million customer relationships (largest non-regulated in North America) • S&P “A” credit rating (via parent company, Centrica plc) • Approximately 4,700 employees • 1260 MW of power generation in Texas, 88 mmcfe/day production and P&P reserves of 320 bcfe in Alberta • Large Home Services operations in North America

4. Telco – The Ecosystem Evolution Circa 1980 – Regulatory barrier Residential Connectivity Residential Connectivity Local phone Long distance • Post AT&T breakup • Telco - consumer choices and solution Ecosystem

5. Customer Communication Network Connectivity Twisted Pair Wiring Evolution of the Telco market With limited sources for network connectivity, resellers’ attempts to compete are limited as they work from the same cost basis and have little ability to differentiate themselves. 1984 As additional forms of connectivity are introduced to the market, the competitive landscape changes dramatically, with multiple competitors able to differentiate themselves by both price and service. Cable Ethernet Cellular BPL WiMax Customer Comm. Act of 1996 Communication Network Connectivity

6. Ecosystem 2008 - Consumer choices and solutions Broadband Cellular Residential Services Hardware LandLine

7. The impact of the Ecosystem expansion Approximately 50% of gain through M&A Approximately $30B in new products and services that did not exist in 2000 (Really ) Local phone Long distance phone Local phone Long distance phone Internet Wireless hotspots Cellular Home Security Hardware TV services (2000) $51.5 B revenue (2007) $119 B revenue

8. Alternative Supply • Solar PV • Micro-Gen • Battery Storage • Hybrid Cars Customer • Demand Reduction • Energy Efficiency • Load Management • Virtual Generation Generation The Parallel: Telco and Energy In much the same way that the Telco industry was constrained by a single source of communication network connectivity, the energy markets are constrained by a single source of energy supply – the generator through the local wires and poles company. Customer Generation In order to relieve the constraint, alternative forms of energy supply will be introduced to the market. The alternatives can come in the form of alternative supply or demand reduction (Virtual Generation).

9. VC Investment Telecom vs Cleantech • VC investment in telecom peaked in 2000 just prior to rapid growth in mass markets • VC investment in Cleantech advancing at a rapid pace although some slowing due to recent economic downturn • VC investment in Cleantech expected to peak in 2010 • Federal and provincial subsidies will act as accelerators for innovation

10. Mass Market Emerging Energy Ecosystem It’s just another point in the cloud It’s our “core” business Retail Consumer It’s just another retail transaction It’s just another managed service

11. State of the Connected Home – Summary 2008 • Online consumers cite safety alerts and home energy conservation as the top benefits of having an integrated home control system that enables control/monitoring via the Internet from any device. • Mass market consumers are a bit more positive (and less negative/more neutral) about safety/security and energy conservation than other benefits, such as one-touch control/scene setting. • Energy-related products and services—and one security product—are the top-rated concepts tested in this research. • A home energy management gateway that delivers a reduction in energy costs. • An energy-saving power strip that allows users to turn-off devices drawing power and monitor energy usage. • A programmable thermostat and a home zone sensor system, both of which allow monitoring/control via computer or cell phone. • Consumers are most able to envision adopting new products and services that are simple and compatible with their current ways of doing things. • They warm to the idea of using technology to improve how they do specific tasks that are typically done on paper, on the phone, and/or on a computer—such as paying bills, communicating with others and managing to-do lists. • By contrast, they have trouble envisioning how to use technology to streamline routine tasks that traditionally involve physical activity, such as lawn mowing, meal preparation, dishwashing, etc.

12. U.S. 2008 Total Online HHs (n=625) Mean: 41% Canada 2008 Total Online HHs (n=222) Mean: 38% 0% 1%-25% 26%-50% 51%-75% 76%-100% Interest in Home Energy Management System % Savings on Annual Home Energy Bill Required to Consider Buying a Home Energy Management System • Target consumers have high expectations for payback on investment in a home energy management system—on average, they expect to see about 40% annual savings on their home’s annual energy costs. • More than two-fifths expect savings in the 26-50% range. • The average U.S. household spent $1,493 for household fuel in 2001 (the latest year for which data are available), according to the U.S. Energy Information Administration Residential Energy Consumption Survey. • On average then, consumers expect to recoup at least $600 per year from their energy bills when buying a home energy management system—likely an unrealistic expectation. • Mass market consumers have higher expectations for payback than primary market consumers, particularly in the U.S. QY42B.

13. Current satisfaction with home energy management systems

14. Introduction – Pilot Overview Direct Energy is engaged in an energy conservation program aimed at providing consumers with high-tech tools to help them better manage their energy consumption and reduce their environmental footprint. This research was conducted in order to assess users’ reactions to the program and to determine how the pilot project has impacted their attitudes and behaviours regarding energy use around the home. • NOTE: These research results are qualitative in nature. As such, they provide useful insights into underlying consumer attitudes and motivations. The results of this research are not, however, statistically projectable to the population at large.

15. Objectives • Explore participants’ overall reactions to the project • Assess pros and cons of using the system • Determine the perceived benefits • Uncover ideas for improvement of the system • Explore how the system has changed behaviour and attitudes towards energy consumption

16. Methodology • A total of four focus groups were conducted with program participants • Two groups with participants who accessed the system once a week or more • Two groups with those who accessed it less than once a week • A mix of males and females in each group • Screened to be heads of household who had some decision making power over choice of energy suppliers • Also, had to be one of the primary users of the online interface • Groups were conducted on July 22 and 23, 2008

17. Motivations • Reasons for signing up for the program fell into two primary categories: • An interest in the high-tech, leading edge aspects and the program and a desire to be first among the first to use it “I love technology”… “The whole tech thing, I love” … “Cool thing to have” • A desire to conserve energy, in order to save money “Was more about saving money on my part” … “We’re looking to save money” • A minority of respondents also mentioned the environment as a motivator for signing up to the program, but even for them other drivers appeared to be more important “The environment was a factor, but it’s more convenience I’d say” • Some were also driven by the fact that they were getting the system for free “It was a gadget and it was free!”

18. Attitudes: Pre-Post • Respondents were asked to describe their feelings when they first started on the program and how they feel today • For most, there was a strong contrast from feelings of excitement and enthusiasm at the beginning to a sense of disappointment or indifference today • The sense of disappointment stems from a feeling that the system has not lived up to its promise and has been prone to operational problems • The indifference is a result of the fact that once it was up and running, it tended to get ignored, largely because it seemed not to be relevant to users’ lifestyles • A few users reported feeling “happy” and “content” about having signed up for the program, but they were clearly in the minority

19. Before After thrilled ambivalent enthusiastic frustrated excited indifferent glad impatient apathetic proud useless

20. Attitudes: Pre-Post The negative post-usage reactions were driven by a number of factors: • Not fitting into users’ lifestyle “I thought I was going to log on a lot, but I almost forgot about it” “It didn’t get adapted to my daily routine. It’s a lot easier to just go to the thermostat” “The control of devices is not something that fits our lifestyle” • Failure of the system to function properly “It doesn’t work half the time. The whole system doesn’t communicate [properly]” • Not providing relevant information “The reports online weren’t being updated…they weren’t real time” • Inability to access the system remotely “Not being able to use it from work [due to firewall issues]” • Confusion about thermostat controls “There was some confusion about what setting to put it on – A could be air conditioning, C could be cold”

21. Attitudes: Pre-Post Positive post-usage reactions were less about having active engagement with the system or a strong link to benefits, and more about the fact that you could just “set it and forget it” “I still think it’s pretty cool but I’ve had it for a while and I’m used to it now ” “You don’t really use it on a daily basis. It uses itself, and it’s just there, so you forget” “I do feel that I’m saving money but I haven’t looked at any data”

22. Benefits • In order to get beyond the superficial benefits of the system, respondents were asked to select pictures that for them represented the benefits of the system • Their selections split along three axes: rational, emotional and altruistic peace of mind control rational emotional benefits rewards of saving information altruistic environment next generation

23. Rational Benefits CONTROL INFORMATION “It’s like female empowerment … my husband leaves the lights on … I would be going online to turn them off” “It’s part of the game plan … to be able to fully control everything in a room without having to get up” “It’s about the data and the information and analytics. Being able to see that and make behavioural changes” “It represents access to information”

24. Emotional Benefits PEACE OF MIND REWARDS OF SAVING “Vacation… relaxing… calm and quiet in my home. Just set it and forget it” “Blue sky… calm, relaxed, no worries … lights will go on when I need them to. I can go and enjoy the beautiful day” “I can save actually… will lead to my early retirement” “Vacationing after saving all of this money”

25. Altruistic Benefits FUTURE GENERATIONS ENVIRONMENT “It’s about the kids, the next generation… and teaching your family to conserve” “Because you want to make the world a better place for the future generation” “The whole green movement – that’s one of the main benefits that the program has” “It represents to me that every little bit counts when it comes to the environment”

26. Using the system For many, the system did not offer the benefits of a good programmable thermostat • Not high tech, looks less sophisticated and cheaper • Not user-friendly, controls not easy to understand • Not as convenient, simpler to walk up to the thermostat and make an adjustment • Not as practical And most importantly, a good programmable thermostat would do as much or more to conserve energy and to change energy usage patterns The system is most useful when no one is home. If that’s not the case, it loses its relevance: “Because I stay at home, it didn’t have an impact because I didn’t need to change anything remotely” “I cannot change my home temperature when I’m at work because somebody’s at home all the time”

27. Control In order to explore the issue of control more fully, respondents were shown two statements: The Power to Control Your Own Energy Use • Focused on the putting the control in consumers’ hands by giving them the right tools to be able to conserve energy Worry-Free Energy Management • Discussed the benefits of allowing the utility company to control consumption by automatically adjusting users’ thermostats in times of peak demand

28. Control Not surprisingly, most respondents favoured the statement that talked about putting control in their own hands. However, this was not for purely selfish reasons. Control = Responsibility • For many, the idea of person control equated to the notion of personal responsibility when it comes to energy consumption “If you have your own control, you become a responsible citizen” “It’s my responsibility … allowing us to make decisions” Control = Power to make a difference • In addition, this statement made people feel as though they could make a positive difference in reducing their footprint if control was in their own hands “This made me feel like, wow, I can really make a difference!” “It created a more emotional response in me … I want to do my part to help”

29. Control Although most people liked the ideas expressed in the statement about personal control, they also felt that the system, as it is currently functioning, does not live up to the promise of the statement • Lacks timely information, so not able to make decisions about usage or changes in behaviour “There’s not enough meaningful data … today’s information is not available” • Is not seen as “high-tech” -- a programmable thermostat was deemed to be more high-tech than this system “The thermostat looks really old” “It’s definitely not high-tech at all, it’s a basic system” • Lacks critical information about peak periods and rates “The system doesn’t identify peak periods … it would be more helpful if you were actually told what the peak periods are”

30. Control The statement about putting control in the hands of the utility, generated a conflicting response. On the one hand many liked the idea of centrally controlling usage during peak periods but at the same time they felt leery about allowing others to control what goes on in their homes. • Benefits of central control in terms of preventing blackouts were seen as significant but would only be meaningful if everyone was obliged to participate “The big brother side of it definitely needs to happen. It should be mandatory” • Discomfort with central control could be assuaged by reassuring consumers that the control was limited (only a couple of degrees adjustment) and that it individuals could always override the system “It was just very scary … that someone else would have control” “The only thing that would be good about [this] is if everyone is on the program” “They need to clarify that you always have the ultimate control over your energy”

31. Using the system During the course of discussion a number of issues emerged about how users were interacting with the system as a whole. REMOTE ACCESS • A major appeal of the system is the ability to control it remotely, as a result when the system couldn’t be accessed remotely, or when someone was home, it lost much of its relevance • Remote access is seen not so much as an energy conservation issue but as a safety benefit – to have lights come on while no one is at home • For many, vacation time was the when the system truly came into its own: “When we went on our vacation it worked really well for us” • “by participating in the program you’re not assured that you’ll be saving energy”

32. Using the system MANUAL THERMOSTAT ADJUSTMENT • One reason why remote access is relevant is because, when at home, it’s simpler for users to adjust temperature manually than on the computer • The thermostat, not the computer, is the most important controller of the system when people are at home • This is why the level of sophistication and usability of the thermostat is critical SEPARATE MONITOR • A separate monitor that can be used anywhere in the home to control all aspects of the system would be preferable to the current system • In fact, this is what some users were expecting when they signed up: “When I signed up for this I thought this would be a separate device, like on the counter, that I could look at all the time, with instantaneous reading”

33. Using the system INSTANT DATA • The lack of instantaneous data means the data lacks relevance • Therefore users have little incentive to consult the system regularly (can’t recall of what they were doing two days ago to cause a spike in usage) • The result is that the system is not seen as a fun toy to have rather than a tool for changing consumption behaviour NOT A TOOL FOR CHANGING BEHAVIOUR • Many felt that a smart meter coupled with a programmable thermostat would do more to shift usage and reduce energy consumption than this system “By participating in the program you’re not assured that you’ll be saving energy” “It’s just a gadget for me. I look at it every once in a while”

34. Conclusions and Observations NOTE: The results of the this research must be viewed in the context of two important factors • This research was conducted among early adopters. Their attitudes and behaviours are likely to be different from those of mainstream consumers. On the one hand, they’re likely to more interested in the novelty of new technology. And on the other hand, they’re likely to be more knowledgeable and more critical of that technology • The system as tested was not functioning optimally. Users reported communications and other glitches; help lines were not properly manned; and most importantly, the system lacked up-to-date usage data.

35. Conclusions and Observations • There is a disconnection between consumer motivations for signing up for the system and the perceived benefits of using it • Participants were motivated primarily by an interest in having a cool new gadget or by a desire to save money by conserving more energy • Environmental concerns did not emerge as a major motivator, instead energy conservation was linked primarily to cost savings • Males appeared to be more into the gadget aspect of the system • However, the benefits of the system were connected more to altruistic issues like saving the environment for future generations and to other things, such as having access to useful data and achieving peace of mind, knowing that the system was taking care of the home • The relevance of the system as a whole was undermined by the lack of current usage data • Both its practical and its fun appeal rested on being able to access and control things in the home remotely

36. Conclusions and Observations • However, the remote access feature was undermined by the fact that several people reported being unable to access the system from work (due to firewall restrictions) or by the fact that, if someone was always home, there was no perceived need for remote access • Remote access was also more of a security feature (turning lights on when no one was at home) than an energy saving feature for many users • As a result, the system seemed most useful when users were going away on vacation (Vacation imagery also figured strongly in the benefit exercise) • Individual control is an important aspect of the system in part because it instills a sense of personal responsibility for our energy use and it gives consumers the sense that their actions can make a difference • Consumers are willing to cede control to the utility in times of peak usage, provided they feel they can override that control, if necessary, and that they were not the only ones participating

37. Conclusions and Observations • As it is currently configured, the system fails to live up to its promise as a tool for helping consumers to change their behaviour and reduce their energy consumption • The system is seen as more of a toy than a tool at the moment -- a fun gadget that’s nice to have but not as practical or useful as a good programmable thermostat • Lack of willingness to pay for the system is linked to the fact that it is not currently seen as a tool for changing behaviour or saving energy: “I don’t need this to control my behaviour” • In addition, consumers expect that this program should pay for itself and any costs should at minimum be offset by energy cost savings • There is also some resistance to the idea of paying an ongoing monthly fee • Users are frustrated by the lack of sufficient training and help for using the system

38. Recommendations • In its current configuration, this program has not demonstrated sufficient value to consumers to warrant being launched on a broader scale. Significant improvements would need to be made in order for the program to gain wide and acceptance and for consumers to be willing to pay for it. • For this program to have real value for consumers, it must provide up-to-date usage data. The program should not be launched to a wider audience without this change. • The optimal version of the system would also include a separate monitoring/control device that could be placed anywhere in the home so that users can view and change settings without having to go online • If possible, efforts should be made to improve remote online access, to overcome current problems of inaccessibility from workplace computers

39. Recommendations • Any pricing strategy should reflect the fact consumers have difficulty understanding why they need to pay on ongoing monthly fee for the system • Improvements need to be made to education materials and help functions on the system. The user interface should also incorporate rollover labels that explain the functions of various buttons on screen. • Consider moving data that is confusing and extraneous to the user’s personal data (e.g. coal/smog levels) to a separate page and clarifying what this data is • Include the option of more precise temperature settings (half degree increments) and more flexibility in mode settings (e.g. different “Home” setting options)

40. Recommendations • Consideration should be given to improving the thermostat that comes with the system, to bring it more in line with what users are accustomed to seeing in a programmable thermostat: it should be easier to use and at the same time look more high-tech • The system should allow consumers many more options for light switches and plug-in controls, so that more items in the home can be monitored and controlled • The usage data presented on the system would be seen as much more useful if it could also be linked to billing data on the utility’s website

41. Recommendations • If launched to a wider market, marketing of the system should take into account the differences between motivations (personal) and benefits (altruistic). At a rational level marketing messages should talk to the benefits but at an emotional level they should appeal to the underlying motivations • The environment was not a primary motivator for users of the system. Their desire to conserve energy was driven first by a need to save money. However, they did recognize that environmental benefits also flowed from reduced energy consumption. When marketing this system it should be recognized that saving money trumps saving the environment in consumers’ minds.