“Why millions of Americans give up control of their thermostats”, By Nicolás Rivero and Niko Kommenda

HOUSTON — Last September, in the final days of what was then the hottest summer in human history, scorching temperatures threatened to knock out the Texas power grid.

CLIMATE SOLUTIONS

Why millions of Americans give up control of their thermostats

By Nicolás Rivero and Niko Kommenda

September 24, 2024 at 6:00 a.m. EDT

10 min

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HOUSTON — Last September, in the final days of what was then the hottest summer in human history, scorching temperatures threatened to knock out the Texas power grid.

As air conditioners around the state strained to keep homes and businesses cool in 100-plus-degree heat, the state’s grid operator declared an energy emergency, asking all Texans to save electricity between 6 and 9 p.m.

Ada Garcia, a Houston homeowner, didn’t have to touch her thermostat to pitch in. Her utility company remotely shut off her air conditioner nine times that day as part of a power-saving strategy that is already propping up grids around the country as they deal with booming demand and a growing share of unpredictable wind and solar power.

Power reserves available, in megawatts

On a typical September day, the Texas grid has plenty of reserves to protect against high demand or a drop in power generation.

But one evening last September, blistering heat, the setting sun and a drop in wind shrank reserves to unusually low levels.

At 7:25 p.m., grid operators declared an emergency and called on demand reductions.

One such reduction came from Garcia’s home, where energy providers remotely shut off the AC throughout the day to ease the pressure on the grid.

Without this intervention, reserves might have approached critical levels, ultimately requiring rolling blackouts for hundreds of thousands.

Garcia, who was working in her home office, had no idea that Texas was teetering on the edge of an energy crisis that evening or that Octopus Energy, her power company, was waging a battle in her living room to save the grid. But these small adjustments to her thermostat saved about 10 kilowatt-hours of electricity, which is enough to wash about 20 loads of laundry.

“I never really notice when they change the thermostat,” said Garcia, who signed up for the energy-saving program in exchange for a discount on her monthly power bill.

Houston homeowner Ada Garcia says she saves about $25 on her monthly power bill because she lets her electricity company adjust her thermostat occasionally. (Danielle Villasana for The Washington Post)

Around the state of Texas, Octopus and other power companies raised thermostats, paused electric car chargers and tapped into home batteries in thousands more of their customers’ homes. They also paid stores, data centers and office towers to shut off lights and air conditioners and slow down their computers.

All told, Texas utilities made 2.6 gigawatts of electricity demand disappear in the critical moments when the grid was in crisis — the equivalent of a large nuclear power plant.

That’s why programs like this one are called “virtual power plants.”

Experts say they will be crucial for helping the United States clean up the electric grid without facing blackouts — and without waiting years for new power plants and transmission lines to go through permitting and construction.

“They can be deployed very quickly using [devices] that are already in people’s garages or on people’s rooftops or in people’s basements,” said Mark Dyson, a managing director in the electricity program at the clean energy think tank RMI.

Power grids across the country are straining to keep upwith demand as new data centers and factories sprout up and more drivers plug in electric cars. Meanwhile, supply is becoming less predictable as power companies replace polluting fossil fuel plants with wind turbines and solar panels that only make electricity when the wind is blowing and the sun is shining.

The next generation of ocean conservationTripling the current capacity of virtual power plants by 2030 would help the U.S. grid meet rising electricity demand in a faster, cheaper, and cleaner way than just building new power plants, according to a recent report from the Energy Department. But for that to happen, millions more people would have to give companies power to fiddle with their thermostats and appliances.

How does a virtual power plant work?

At the U.S. offices of Octopus Energy in downtown Houston, a rack of computer servers and a team of software engineers act as the brain of a virtual power plant that reaches its tentacles into thousands of homes across Texas.

Screens hanging overhead track the wild swings in Texas wholesale energy prices in real time. When the sun shines and the wind gusts through the state’s collection of solar panels and wind turbines — the biggest green energy fleetin the United States — electricity prices can fall to zero. But in the evening, when the sun sets just as people come home from work and start to cook, watch TV and flip their lights on, electricity prices soar.

Michael Lee, who heads Octopus Energy's U.S. operations, points out how much Texas energy prices can change throughout the day based on grid conditions. (Danielle Villasana for The Washington Post)

When the grid is strained, Octopus Energy’s software automatically shuts off participating customers’ air conditioners and car chargers and sells power from their home batteries back to the grid. That way, Octopus avoids buying electricity at the highest prices, allowing the company to make a bigger profit.

In exchange, customers who sign up for the thermostat program or who let Octopus adjust when their EV chargesget a 20 to 30 percent discount on their monthly power bill. To take power from their home batteries, Octopus will either cut customers’ power bill in half or pay them $40 a month plus market price for the electricity it uses.

In the past, when the grid was on the verge of a crisis, power companies would call their biggest business customers one by one and ask them to use less electricity. “Literally, they’d call the building manager in a large office and be like, ‘Is there any way you can help me out tomorrow at 4 p.m.?’” said Jonathan Winer, who co-founded the investment firm Sidewalk Infrastructure Partners. “It was all very, very manual.”

Power companies didn’t start recruiting individuals until internet-connected thermostats and appliances made it possible to reach into thousands of residential customers’ homes and automatically track and change the way they use energy.

So far, utilities’ main target has been smart thermostats. Americans have installed more than 25 million of them and they’re buying millions more each year, according to the market research firm S&P Global Market Intelligence. Plus, these devices control heating and cooling, which make up most of the average U.S. household’s energy use, according to the Energy Information Administration. “If you can manage that one asset, you can make a significant dent in somebody’s overall climate footprint,” said Michael Lee, who heads Octopus Energy’s U.S. retail operations.

Already, virtual power plants have helped avert blackouts in states such as Texas and California, where state energy regulators said the programs “made an enormous difference in our efforts to keep the power flowing” during a 2022 energy emergency that threatened to shut down the grid.

Convincing the skeptics

For virtual power plants to grow, they need to appeal to two sometimes skeptical groups: power companies and their customers.

Electric utilities can make money from virtual power plants in states like Texas, where power companies compete to generate, buy and sell electricity at constantly shifting prices. Many of these states — including California, New York and much of New England — already have thriving virtual power plants. A new rule from the Federal Energy Regulatory Commission requires wholesale markets in these states to allow virtual power plant programs to join the grid.

But in states with one monopoly power company, there are few economic incentives to set up virtual power plants. At least 17 states have addressed this problem by changing the rules so utility profits are based on meeting goals like lowering carbon emissions or minimizing power outages.

The other challenge is convincing people to give electric utilities and tech companies control over their homes. Any company that runs a virtual power plant has to be careful not to futz with peoples’ devices so much that they get fed up and quit.

“You can find a lot of really passionately pissed off people in summer events where they’ve had back-to-back [thermostat adjustments] without a fair exchange of value,” said Donald McPhail, vice president of product at the grid software developer Uplight.

One way to address this is to give customers more control over how they participate. Octopus Energy, for instance, agrees not to let customers’ homes rise above a maximum temperature they choose, and it guarantees their cars will be fully charged by a time they pick. Customers can override the automatic shutdowns any time, but Octopus says fewer than five percent of them do.

“We recognize how sacred the thermostat and the AC is in Texas,” said Daniel Kirwin, a product manager for the Octopus Energy virtual power plant. “We don’t want to be intrusive if we do not have to.”

Another strategy is to give customers big discounts and remind them that they’re contributing to the greater good. Garcia, the Houston homeowner, signed up for the Octopus Energy virtual power plant last year, after the company offered to shave $300 a year off her energy bills — and told Garcia she could help Texas avoid a blackout like the one the state experienced during winter storm Uri in 2021.

Garcia remembers Uri vividly. After the power went out, the temperature inside her apartment dropped to 40 degrees, a pipe burst in the building and she had to leave her home for two weeks. Across the state, nearly 250 people died. “That was awful,” she said. “Now, in a way, I’m helping the power grid.”

A brighter future

Thermostats are just the beginning. As Americans buy millions of smart appliances, solar panels, home batteries and electric cars, power companies are expanding their virtual power plants to include more gadgets.

“The numbers are so big that if even a fraction of smart device owners choose to enroll in virtual power plants, the … growth potential is very high,” said Jennifer Downing, an engagement officer in the Energy Department’s Loan Programs Office.

If the trend continues, there may be a lot more homes that look like Nick and Alma Nicoletti’s house in Katy, a Houston suburb.

Nick Nicoletti, a retired master electrician, has installed practically every cost-saving, energy-optimizing gadget on the market. There are 53 solar panels on the roof, which power the house and charge a 10-kilowatt-hour battery in the workshop. Two electric cars — a Chevy Bolt and a Ford F-150 Lightning — sit in the driveway. A smart thermostat controls the air temperature.

Master electrician Nick Nicoletti shows some of the electrical boxes and meters he set up at his home in Katy, Tex. (Danielle Villasana for The Washington Post)

The thermostat and batteries are hooked up to the Octopus Energy virtual power plant, and the EV charger may follow.

The couple don’t pay to power their home or to fuel up their cars. Last August, they took part in an Octopus Energy contest to see which customer could sell the most electricity back to the grid. The Nicolettis came in eighth after selling $458 worth of power.

“I was in the top 10 the whole time,” Nick Nicoletti boasted. His only regret? He hadn’t installed his home battery in time for the contest. “I couldn’t tweak my system how I wanted to without the battery.”

“He gets to be a pain in the neck with all of this,” Alma Nicoletti said.

But she has no qualms about the results. “He’s saved us a lot of money over the years,” she said. And the power has never gone out — even in the depths of Winter Storm Uri, when the Nicolettis’ daughter, grandkids and a neighbor stayed at their house during the blackouts. “They had no power and we had heat and lights,” Alma Nicoletti said.