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MIT TECHNOLOGY REVIEW
BUSINESS REPORT — THE INTERNET OF THINGS
every thermostat it enrolls, and another
$15 per thermostat each year after that.
The “vast majority” of the 5,500
thermostats registered so far are Nests,
according to Sarah Talkington, the Aus-
tin Energy engineer leading the program.
Nest says it finds that roughly half its cus-
tomers will sign up for demand response
when the opportunity is offered.
By the end of last summer, Talkington
says, she could log on to a Nest portal and,
with a few keystrokes, dial down the next
day’s demand by nearly 5.7 megawatts. That
may seem small compared with the 2,800
megawatts that often sizzle across the Aus-
tin grid, but every watt counts. On hot days
like September 3, 2013, as temperatures
rose to 104 °F, the cost of power spiked to
a record $4,900 per megawatt-hour.
Austin had tried residential demand
response before, using one-way pagers to
turn air conditioners on and off. But the
utility couldn’t know if customers were
home, so it wasn’t able to shut off any one
air conditioner for long. Nest, in contrast,
builds a thermal model of each house and
predicts how quickly it will warm up. It
can also guess whether people will be
home. The result, says McGaraghan, is
that Nest can maximize energy savings
and minimize annoyance to residents.
Talkington predicts the residential
program will enroll enough homes to save
more than 13 megawatts through demand
response this summer. Even if Austin gives
out $2 million in rebates, that is cheaper
than increasing power supply by build-
ing a natural-gas-fired generator. Accord-
ing to Michael Webber, co-director of the
clean-energy incubator at the University
of Texas in Austin, new power supply costs
$500,000 to $4,000,000 per megawatt of
capacity, depending on the type of plant.
Webber believes that within five years
the “vast preponderance” of Texans will
have smart thermostats. And Nest knows
that whoever builds this network first
could win big, especially as other energy-
consuming devices, like electric cars and
hot-water heaters, also get wired up.
Eventually, the effects of demand
response could be profound. Austin’s pro-
gram is designed to manage demand only
during the 50 hours each year when elec-
tricity consumption tests the grid’s lim-
its most. But if demand response can
expand to cover the 300 or 400 hours of
peak usage, it could entirely shut down the
market for “peakers,” or gas-fired plants
that come online only to sell expensive
electricity. “ That’s a big chunk of money
that’s at stake,” says Tom Osterhus, CEO
of Integral Analytics, a Cincinnati-based
maker of smart-grid analytics software.
“It’s in the billions.” —Peter Fairley
The Light Bulb
Gets a Digital
Electric lights are 135 years old. The
Internet is 45. They’re finally getting
● To demonstrate how the Internet is
changing one of the oldest and least excit-
ing technology businesses around, Shane
De Lima, an engineer at Philips Lighting,
took out his smartphone. A flick across
the screen sent a message to a nearby
Wi-Fi router and then to a wireless hub,
which shot a radio command to a chip in
the base of an LED lamp in front of us.
A moment later, the conference room
where we were sitting darkened.
It may seem like Rube Goldberg’s idea
of how to turn off a light. Or it could be
the beginning of how lighting companies
such as Philips find their way from selling
lighting hardware into networks, soft-
ware, apps, and new kinds of services.
The introduction of networked lights
is happening because of another trend.
Manufacturers have been replacing incan-
descent and fluorescent lights with ultra-
efficient LEDs, or light-emitting diodes.
The U.S. Department of Energy says that
LEDs had 4 percent of the U.S. lighting
market in 2013, but it predicts this figure
will rise to 74 percent of all lights by 2030.
Because LEDs are solid-state devices
that emit light from a semiconductor chip,
they already sit on a circuit board. That
means they can readily share space with
sensors, wireless chips, and a small com-
puter, allowing light fixtures to become
networked sensor hubs.
For example, last year Philips gave
outside developers access to the soft-
ware that runs its Hue line of residential
LED lights. Now it’s possible to down-
load Goldee, a smartphone app that turns
your house the color of a Paris sunset, or
Ambify, a $2.99 app created by a German
programmer that makes the lights flash to
music as in a jukebox.
That’s a very different kind of business
from selling light bulbs, as Philips has
done since 1891. “With the new digitiza-
tion of light, we have only begun to scratch
the surface on how we can control it, inte-
grate it with other systems, and collect
rich data,” says Brian Bernstein, Philips’s
global head of indoor lighting systems.
Another look at how lighting systems
are changing will emerge this Novem-
ber, when a 14-story regional headquar-
ters for Deloitte, nearing completion in
Amsterdam, will be festooned with net-
worked LEDs in each fixture—the first
such installation for Philips.
Each of 6,500 light fixtures will have
an IP address and five sensors—all of them
wired only to Ethernet cables. (They’ll
use “power over Ethernet” technology to
deliver the juice to each fixture as well as
data.) The fixtures include a light
• Radio chip
• 512k of
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