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Why we think smart thermostats will lead the connected home energy market in the UK and the Netherlands

When we speak of connected home energy solutions, different types of products come to mind, among these are smart thermostats, multi-zonal (room thermostat) systems, remote diagnostic of heating systems and tariff optimisation solutions.

Latest Delta-ee research shows that smart thermostats are expected to be the dominant type of connected home energy product in 2017. Our central scenario sees sales in the UK and the Netherlands expected to reach 700,000 and 400,000 units per year respectively, from around 100,000 units per year base today.
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Today’s supply chain is dominated by energy suppliers
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Although some of these products, especially in the UK, are available through retailers and installers, majority of sales are coming from energy suppliers, as they attempt to reduce customer churn in a highly competitive market. In the UK, Hive, which has the vast majority of sales today, is being pushed through British Gas. Other energy suppliers are offering product but with far less sales so far. Climote through Scottish Power, Nest through Npower and Tado through SSE. As for the Netherlands, Quby has majority of the sales with the Toon smart thermostat, which is available exclusively through Eneco. Essent is offering ICY smart thermostat, as well as Nest thermostat. Plugwise, with Anna, a “Nest like” aspiration type product, introduced towards the end of 2014, will be looking to increase the level of competition in the Dutch market, and will push its smart thermostat primarily through Dutch utility, NLE.

Why are the UK and Netherlands set for growth?

The level of heating controls in the UK are typically quite basic, which makes it an ideal market for smart thermostat upgrades. As for the Netherlands, although the heating controls are typically more advanced, the high level penetration of easily upgradable “dumb thermostats”, on top of the high number of gas boilers coming with OpenTherm (an open communication protocol), makes the Dutch market also very attractive.

The overall opportunity for smart thermostats in the Dutch market is limited by an installed base of ~6 million boilers. However, the UK market, with ~21.5 million gas boilers installed, and annual installations of heating systems reaching 1.6 million, presents a much bigger opportunity. This opportunity has been exploited mainly by energy suppliers, looking to increase customer retention by offering a smart thermostat for free or at a reduced price in exchange for a long term energy supply contract. This could be further exploited in the UK if ECO, an energy efficiency obligation on energy suppliers, was to include smart thermostats within its framework - smart thermostats could then bring significant additional value to energy suppliers, and see sales exceeding our reference scenario of 700,000 per year by 2017.

How can value be extracted from the connected home space?

Delta-ee’s recent report on different business models for connected home players identified 20 value creation opportunities for energy suppliers, heating appliance manufacturers, connected home providers, installation companies and telcos.

Some of these value creation opportunities are attainable by 2017, for instance the direct profit from selling these smart thermostats, or cost-to-serve savings through customers understanding their energy usage better. Other opportunities, such as value creation from demand response programmes, have high potential, but are not likely to be widely in reach by 2017 in most markets. Sweden is one exception where ToU (Time of Use) tariffs are already available (Denmark will follow) although they are not yet widely promoted by energy suppliers and the value is dampened by low volatility in the wholesale electricity market there.

Sweden and Denmark will be the next countries to be added, as part of Delta-ee‘s Connected Home Market Outlook Report, following the first part which covered UK, the Netherlands, Germany and France.

So although smart thermostats will remain dominant in the UK and the Netherlands, the story is different in other markets. For example, multi-zonal heating systems will be more successful in other countries, such as Germany. We will be writing about this in a future blog.

To find out more about this research or the Connected Home Service, contact me at [email protected].

 

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Sunday, 22 September 2019

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