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Home Energy Management Systems (HEMS)

By Posted on February 3, 2015

DAVE HURST_NEXTENERGYOne of the biggest challenges facing the home energy management systems (HEMS) market is that the greatest value is derived from two very different customer bases: utilities and private consumers, each with their own market drivers.

To date, consumer demand for HEMS solutions has been low because the savings on energy bills have been low. The consumer market is much more focused on home automation and connected devices that offer consumers more control.

The utility market is much more focused on aggregating multiple homes together into bundled packages. Saving 5% on a single residence energy bill does not have much impact on utilities, but saving 5% on 1,000 homes will offer real value to utilities. The most successful innovators, including both hardware and software companies, have been able to identify crossover and provide value to both. Three main crossover points have come proven successful so far: data analytics of energy use, smart thermostats, and energy disaggregation.

In the software market, data analytics firms have found a crossover point where the analysis of individual home energy use data can bridge the gap. Data firms can reduce consumer energy costs by offering individualized cost reduction strategies for consumers, as well as bundling multiple homes together to put a value on reduced residential energy load to utilities. This combination of value for the consumer and value for the utilities has become a strong business models in the HEMS market.

In the hardware market, smart thermostats are the first crossover point between consumers and utilities. Products like Nest, Ecobee, and Honeywell’s smart thermostats are being marketed and sold to consumers as a way to reduce energy costs while also being bundled with utilities’ demand response programs. Hardware that provides energy monitoring has also been the focus of this sort of dual-value recognition, though none of these devices have had the success in the consumer market that smart thermostats have. HEMS specific hardware manufacturers are also finding a path-to-market by integrating with home automation. HEMS essentially offers greater control over energy consuming devices such as air conditioners and lighting, and therefore integration into home automation is a natural fit. As such, the draw for consumers comes from the ability to automate and simplify different home systems that provide comfort, security and entertainment. The cautionary note is that the HEMS market remains two-sided and those focused on delivering only in the automation market are leaving revenue on the table by ignoring the utility market.

Energy disaggregation is attractive to both utilities and consumers, but also crosses the software and hardware markets. Energy disaggregation gives consumers the ability to save money by identifying sources of energy use. For example, learning that leaving the TV on standby all day uses 0.2 kW, or discovering a potential appliance problem because the refrigerator is using more energy than it typically does. Utilities can use energy disaggregation to incorporate more systems into demand response (water heating, climate control zones, lighting or others). This energy disaggregation could benefit the consumer by leading to greater integration in home automation systems, as well as offering greater value to utilities by potentially integrating other systems into future demand response programs.

The energy flow in a home is getting more complicated. With the ability to monitor different individual appliances and plugloads, as well as the increasing adoption of residential renewable energy generation, HEMS systems, whether called HEMS or home automation, seem likely to continue to grow.

HEMS and Home Automation Path-to-Market

HEMS graphic


Join the discussion 4 Comments

  • Kurt Ruecke says:

    Excellent article on residential energy efficiency. The fourth factor to consider is the number of measures towards improving home energy efficiency. Research shows that one measure such as a Smart T-stat is just the beginning and that consumers do not begin to realize real savings until 2nd, 3rd, and 4th measures are taken: windows, insulation, sealing. The problem is understanding which measures to take that will yield the best results. A good starting place is a comprehensive home energy audit performed by a BPI professional.

  • Hi Dave,

    Great article on an interesting emerging opportunity. When carbon legislation comes through, it will obviously change this market in new ways as well. The LEEM program developed at Wayne State (transparency note – we are partner in developing this) is a great tool for this sphere as well, which may be of interest to you:


  • Dave Hurst says:

    Hi Kurt, I apologize for the delay. I completely agree that the biggest bang for the buck comes from multiple measures, but unfortunately, often purchase decisions on the consumer side are made via ROI calculated per device or component rather than across multiple systems (sometimes while standing in the isle reading packaging at the hardware store).

  • Dave Hurst says:

    Hi Jacob, I apologize for the delay. Thank you for bringing the LEEM to my attention; I have not seen that before. That sort of modeling will definitely be useful for carbon pricing, and if it could be used in predictive models could likely help make future generation decisions for utilities (though I suspect it would be a pretty tough sell to the consumer market).

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