Paying People to Turn Off the Fridge

Published Oct 27, 2022, 4:05 AM

Matt Duesterberg is co-founder and president of OhmConnect.

Matt's problem: How do you build a business around getting people to save energy? Not all that much. And not all the time. But just enough, at just the right time. OhmConnect is paying customers to reduce their household's energy usage at times of high demand. The company is a window into the bizarre world of energy markets -- and human behavior.

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Pushkin. We're in the middle of this profound energy transition. Solar panels and wind farms are now cheaper to build and install than fossil fuel power plants, and they're coming online fast. This is great news, But there is always a butt in stories about renewable energy, and that butt is often about the intermittent nature of a lot of renewable power. What do you do when everybody's running their air conditioner, but it's a cloudy day with no wind, and you can't generate enough power to meet demand. What you do right now is you fire up what's called a peaker plant, an expensive, inefficient fossil fuel power plant, to make up that difference. If only there were a way to get people to cut back on their power usage right at those moments, just enough to spare us from having to turn on those crappy peaker power plants. I'm Jacob Goldstein and this is What's Your Problem, the show where entrepreneurs and engineers talk about how they're going to change the world once they solve a few problems. My guest today is Matt Dusterburg, co founder and president of ome Connected by the Way. That's o HM, the unit of electrical resistance. They're in the power business, not the meditation business. Matt's problem is this, how do you build a business around getting people to save energy, not all that much and not all the time, but just enough at just the right time. The answer, spoiler alert, you give them money. So I think to really understand how your company works, I think we should start with just how does the market for electricity in California work? Because it's it's weird and dynamic, and it's sort of keyed up to your whole business. Right, Yes, that's right, and it really the inception of this came from deregulation, which happened in the early two thousands, and it basically created a market where you can buy and sell electricity on a daily or hourly basis. So you can go out, if you're a market participant, and buy ten megawatt hours of electricity at a certain price, and that's a market define price. Now, what happened to be clear that the people buying that are our power companies are PGN E or whoever the company is supplying power to people in California. Right, Yes, so PGN SDG are the usual suspects, and the price swings wildly right. I think this is a key maybe the key thing for your business is how different demand is across even one day, and how big of a deal that difference is. Right, That's absolutely right. And this is something that no one really understands because most people are just paying a flat rate, but prices vary on the order of force sense per kilowatt hour, which is what normally it is. It's a eighty to ninety percent of the time, it's four sense to a dollar a kilowatt hour. So it just very quickly between those and in fifteen minute periods. So it would be like if you were like you bought gas on the way to work and it was four bucks a gallon, and then you looked on the way home from work and it was one hundred dollars a gallon, right, and then a few hours later it was back to four. Like it's that intense, it's that wide of a jump. That's absolutely right. And one really interesting stat is twenty percent of all costs come from only one percent of the hours. And just to be clear, why is it that the cost behaves that way, Like other things don't work that way? What is it about electrical power that makes these peak demand moments so expensive. So at certain moments in the grid you would need to actually turn on a new gas power plant. It has to basically turn on from not running at all to turning on to deliver fifty maguats, and often these are peaker power plants, and a peaker power plant it's super inefficient, it's like one third of the efficiency of regular power plants, and it's really pollutive, it's really bad for the environment, and it's really expensive. Presumably that's why the price goes up so much because you have to buy that really inefficient, really expensive power because at this particular moment, all of the power that the like regular power plants and all of our beautiful renewable things can create is being used up. So if you have to run your AC at seventy degrees, we're gonna have to turn on this terrible power plant for you. Yes, that is the most expensive, most pollutive, and you can think of it. Only fifty hours a year does this power plant run, So they're basically compensating all of that infrastructure for fifty hours a year of running. You have to pay for that whole plant even though it only runs fifty hours. Here and the reason they have to have it is because we live in a world where we expect that we will always have power, and so they have to be like, well, we'll have this one for those crazy days when it's really hot and everybody's running the ac. Yes, that's right, And I mean, is it right that I feel like the point of your company is, at least at the beginning for us not to have to do that, Like that's kind of where I start when I think about I'm connected? Is that right? Yeah, So we're creating a little bit more flexibility in the man's side, But I would say we are a few years behind. We needed to be there as soon as solar and wind started coming into the grid at the scale look's been going in. And is that because solar and wind are less reliable than fossil fuel. So now not only do we have to worry about the peaker plants, but we have to worry about when there's clouds or when the wind stops blowing. That's exactly right. When there's clouds coming through or the wind stops blowing, you need power somewhere, and so we can either turn on of those really expensive power plants, or we can just say, hey, let's delay our start of our dishwasher washing machine for fifteen minutes or an hour, not turn that on, and then actually, we'll pay the people who are reducing or not turning on their appliances, you know, a portion of those proceeds. So let's let's get in a little bit to how that works. Right. So, if you're a power company, you're in this market where you are paying for power from different whatever owners of power plants and solar cells and whatever. You're paying for power all the time, the price is going up and down, and now there is this way where they can also pay people to not consume. And it's kind of the same, right, your PG and your utility. And you have this moment when you're like, well, either we got to turn on this super inefficient, super expensive peaker plant, or we got to figure out a way for a bunch of people to turn down our conditioners in the next half hour, right, And that's where you commit yes, and we want to basically replace those really really at inefficient expensive power plants, which is smarter usage of electricity. And one of the big technology breakthroughs that has happened over the past ten years is smart devices, So we can do that for people without them having to even think about it. So there is this moment whatever, even on a fairly normal day, right, a normal summer day, everybody's coming home from work, they're all turning on their conditioners. The power company says, oh, we're screwed. We got to turn on this really expensive, really polluting plant unless we can get people to suddenly in the next half hour useless energy. And that's where you come in, right, And so can you just walk me through what happens at that moment? Like how does the money go? How does it work? Yeah, so we have bids ride alongside as gas power plants, these really inefficient, expensive power plants. They're coming in. Say they come in at nine hundred dollars a megawatar, and we bid in at eight hundred and ninety nine dollars megalodar. That's negoets. You're doing little air quotes that negowats like the opposite of a goat, negative watts. That's exactly right. And so most power plants generate megwats. A gas power plant will generate fifty megawatts at a time. We generate fifty negowats. And the federal Energy Regulatory Commission or FIRK has said that basically, one negowat should equal one megawat, and so we're just generating a bunch of negwats. The grid will actually say, hey, we want ome connect to dispatch those fifty negowatts, and then that relieves the grid need and we don't actually have to turn on that peaker power plant. So the power company gives you eight hundred and ninety nine dollars, and you turn around and you say to your customers, turn off the air conditioner and we'll split this eight hundred and ninety nine dollars among you. Basically, yes, that's exactly it. So we get paid eight ninety nine. We pass most of those savings to our users and pay them for actually reducing their electricity. So I love the idea that the power is willing to pay for negative power in the same way they're willing to pay for power, because it's kind of the same to them. There's something a little weird about it, right on some level, Like I mean, this is obvious, and I'm sure there's an answer for it, but like, how do they know I would have used the power? Couldn't I be like, give me some money, or else I'll turn on my air conditioner like I'm weirdly sort of holding you hostage or something like. How does that part work? We use what they call a counterfactual or baseline to say what you would have normally used. And it's a very simple calculation. It looks at your last ten days, whether it's weekdays or weekends and says, okay, on average, you use from seven to eight pm two kilo lots. If you then use one kilo lot, I can actually take the one kilowat savings that you made and sell it into the market. So let's just talk a little bit about about your company, kind of how big it is, where it is, like, how big is the company? How many? How many customers do you have? What are the metrics use? We are about a quarter million customers across the US and Australia, and they are reducing on the order of two hundred to two hundred and fifty megawatts at any given moment, and so that's really between three to five power plants that we've removed from the grid. You said across the US, I mean, I know electricity markets are relatively local, right, and weird and regulated and jankie in all these ways. So are you everywhere in the US or where are you? Weird is like the perfect word for electricity markets. So right now we're in California, Texas, and New York because it is weird, and those are single state markets. There's some other areas that we're looking into, like Baltimore and Chicago, and we'll be across the entire US with a lightweight version of our product in the next year. And so, I mean, how often is it that you say to your customers, Hey, if you use less power right now, we'll give you some money. We're doing a day, Yeah, we're doing events with our customers fifty to one hundred times a year, so one or two times a week. We asked people to reduce what's a normal amount of money somebody would get paid to turn off the air condition or for an hour. Yeah, it varies, but we have anywhere between fifty dollars a year to three hundred dollars a year being earned on our platform. If you have say so per year means like per per event, it's like a buck. It's like turn off your condition for an hour, We'll give you a dollar. That's right up over time. Yeah, a good good metric is about a dollar per event per hour. So there was this day recently in California that made national news. There was a heat wave, everybody was cranking the ac looked like they were going to be blackouts. The state just wasn't going to be able to provide enough power. And then the state sent text messages to whatever to everybody saying basically, you better save energy right now or we're going down, and kind of surprisingly it worked right. Consumption went down really fast and there were no blackouts. So this was, you know, a big news story. But I'm curious what was happening at your company that day, Like, how was it for you? Well, we were in full war room mode. We actually had daily war room meetings at eight am at two pm. We were trying to figure out what else we could give to our customers to really incentivize them to reduce more. We ended up giving away a fifty dollars Amazon gift card if you were able to reduce ninety percent of your electricity or more, and ninety percent is really hard. Only a few members of the own Connect team were able to hit it, but we had thousands of own connect members being able to step up and really turn off a lot of their electricity to earn that fifty dollars gift card. I mean ninety percent. You got to unplug the fridge. That seems like the big one, right, Like I'll turn off the lights, I'll turn off the AC, but unplugging the fridge seems Yes. My mom is in the same boat, which is like, I can't believe you would tell me to unplug the fridge, but yes, Actually, the FDA allows or specifies that fridges can be off for six hours. We're turning off for about two or three hours of time, and we are turning off hundreds of thousands of refrigerators across the state. So you're offering a fifty dollars Amazon gift card to anybody who could do that for just a few hours at that key moment, that's right? And are you offering some smaller amount of money to people who were like, well, sure, I'll turn off the A C, but let me leave my fridge on. Yes. So I wasn't able to hit the ninety percent threshold, but I was able to earn about twelve dollars and I have a small apartment in San Francisco, but we were reducing for two hours. We didn't have the fan on, we turned off the refrigerator, we didn't run any appliances. So I delayed the start of my washing machine and dishwasher for a couple hours, so we got out of that critical time. That's just like the hair club for men. Guy. He's not only the president of them connected, he's so a customer in a minute. The really interesting things that Matt and ome connect have learned not about electrical power, but about human behavior. Now back to the show. Home Connect is kind of a strange company. It's, you know, the kind of thing that is somewhat hard to explain exactly how it works. And so I was curious how they got the word out when they were first starting out, and Matt told me this story about just one day early in the life of the company. That was really key. What happened was this this sort of personal finance guru called mister money Mustache tweeted about ome connect. Basically, he said, here is an easy way to make five bucks a week, and he put a link to the company's site right there in the tweet. I actually remember that day. I was at a board meeting and we saw the number is skyrocket in terms of user enrollments. It was this crazy moment of like, are those numbers right? Are this is our data being pulled correctly? And do you remember how you figured out where it came from? Yeah, my co founder Kurt started investigating. We saw everyone coming back from this Twitter thread, and then we realized that this was exploding even outside of Twitter within a reddit community, and so we started leaning into that and saying, hey, we'll figure out a way to make your energy bills lower as well as giving you money. What was the reddit community? I was a subreddit thread called beer money. Beer money. So beer money is exactly what you are right, Like, You're not going to change anybody's life, but whatever, it's it's close to free money if you know, you're like you said, if you're gonna go for a walk at eight and you can go for a walk at six instead and turn off the AC, why not get the money? Yeah, And our users really look at it that way. They don't see this as like core financial, you know, income. They see it as fun money. And so we ran this weird experiment where we're going to give people a twenty dollar gift card or twenty dollars in cash, and surely, as a pure economist, you would always say everyone's going to take the twenty dollars cash. But actually because you could just buy the gift card if you want or anything else. Yeah, exactly. And we were just shocked at everyone's like, I want a gift card, and the reasons actually made sense. They were like, if it's cash, it's just gonna go for my bills. I worked and I, you know, saved energy to make this money, so it's my money, it's fun money, and so I'm going to go splurge on myself. Huh. That's a really interesting sort of behavioral insight. So for you, it's the same, like you, you would just as soon give people cash, but they actually prefer a gift card. That's right. So I love I love the gift card versus cash example, I get it, although I would always choose the cash. Are there other sort of surprising insights that you've had that are not restricted to kind of this wonky energy market side, but more on the human behavior side. Yeah. I think that the most entrying thing that I've found is that people really have a need and a desire to save electricity. But don't know how to. I'll give you an example. We got a bunch of users early on that would send pictures of them in the dark saying, hey, I'm reducing electricity, but they would have their AC running or their washing machine running in the background, and we could actually see that in the background. And the lights are basically nothing. There's almost because of compact fluorescent and all of the most technology advancements of light bulbs, there's almost no electricity to being used there. But the AC is this enormous literally twenty to thirty light bulbs at once on equivalent, and so you just need to have them turn off the AC for for six or seven degrees. Let's just talk a little bit about power consumption at home, right, So AC is the biggest, and like, like, what are the other biggies. The easy way to think about it is anything that's heating or cooling is going to be some of the biggest usage of electricity. So AC units obviously comes to mind. But if you're in the winter, electric heating is a big portion of your energy consumption. Your refrigerator is a big portion of your energy consumption. Now a lot of those refrigerators are getting you know, much more efficient, but they're running all the time, right, Yeah. I mean I guess the other thing, like when we think about, you know, wanting to conserve, right, like I want to conserve energy, is how different the meaning of conservation is at different times? Right? There are moments, certainly now in California there's so much renewable energy on when you can actually run your air conditioner guilt free. Right, the sun is shining, electric power plants are producing electricity. It's coming to your house and you're cooling your house, and like that's the dream come true. Right, But the same house, the same AC, the same setting on the thermostat at a particular hour when there's so much demand that they've got to turn on the dirty peaker plant. Like then the AC is like a disaster. And that is so not intuitive because it's the same AC, it's the same amount of cooling. It's just contingent on like demand and the grid and the power plants that you just can't feel that as a consumer, c jcob, you are the visionary of energy. That's exactly where I think the energy sector will go is that you have free power. You basically have free energy all the time or not sorry, most of the time ninety eight percent of the time and then two percent of time you have really really expensive energy that is encouraging you to reduce or save energy. But in California, during the middle of the day from twelve to two pm, we have too much power on the grid. We are actually having to curtail solar on a regular basis. So we want you to use power, use as much power as you need. We have too much power, So it should be thought of as a free commodity of free resource except for certain times of the day. And like those times of the day are the times that home connect was created to deal with. Right, that's right, We're created to really hone in on those one or two hours a day, really balanced the grid and then pay our users for actually providing that grid support and grid service. Let me ask you this, why don't the power companies go directly to the consumers to do this? Like they already have the customers, they know my phone number. Like, why do they even need you to do this? Jacob, have you ever gotten a good experience from kand or PG? And I mean the companies are trying, so they actually have had these programs in place for decades, the challenges that they've never really focused on them as a company, and nor are they very good at engaging the consumer. So what are some of the things you sort of haven't figured out yet, Like, what are some of the key problems you're working on now that you haven't solved yet. We really want to be able to scale to the entire US, And one of the challenges you had mentioned the electricity markets are weird, and that's a perfect moniker for it. But going into each of these unique different areas coned we need to integrate with BGN, we integrate with so one of the things we're trying to figure out is how can we do it all at once and then be able to extract those revenues later. And I mean, is that just a matter of grinding out all of the regulatory stuff basically? Is that what that story is? There's forty different regulators you've got to deal with and just talking to a thousand people at forty different utilities. I mean, is it just that? Is it just boring grinding work? There's some element of that. And you know, one of the reasons we're in the three biggest states California, Texas, New York is because there's economies of scale. The grinding out of each regulatory conversation is worth it when you're able to access then five, ten, fifteen million customers. Yeah, so each sub quent one you have the same amount of grinding out for fewer customers. So it gets to be like a worse and worse deal for you over time. Yeah. But what's really great is the all of the states learn from each other very quickly, and so when you go to California and go to New York, they serve as an example to other states. Illinois as a leader in that space too. So you mean you can go to these other places and say, hey, look it works. I know it sounds weird, but trust me, hundreds of thousands of people are doing it and it works. Don't worry, we can do this. Yes, that's exactly right. We'll be back in a minute with the lightning round. Now let's get back to the show. Almost done. Let's let's close with a lightning round. Just fast. Questions Are you ready? Yep? Would you rather be too hot or too cold? Too hot? Thomas Edison or Nicola Tesla? Tesla? What else should we pay people not to do? Fly? I love this idea that you'll pay me to not run my air conditioner. I mean, is there some are there other people who will pay me to not do things? You can look at us kind of like an Airbnb or an Uber. We're providing a gig economy service. You have a latent value that is your air conditioner. And yeah, but Airbnb doesn't pay me to not rent out a room in my house. Fair? Yeah, like that's what. I don't want to rite out a room of my house. I want to not rite out a room of my house I get paid for. You could take the reverse. We're paying you to stay a little bit warmer than you normally would. Okay, okay, fair. If everything goes well, what problem will you be trying to solve In five years we get one hundred percent clean energy, and then we start to tackle the transportation sector. And if we're able to solve decarbonization of the electricity and transportation sector, that's fifty percent of carbon emissions, and there is a pathway in our lifetime to be able to solve climate change. How will you know when it's time to do something else for work? When we've achieved true scale and when I say scale. I'm talking about gigawatts of electricity under control, and gigawatts is like how many customers you need to be doing that? Millions? We're at that far for millions. If you're a two hundred and fifty thousand, you're a lot of the way there. You started zero. Well, I've also been doing this for eight years, Jacob, Okay, well, at that rate, it's going to take a while. What's one piece of advice you'd give to somebody trying to solve a hard problem, Be persistent. As long as you live another day, there's another way to solve that problem. Matt Dusterberg is the president and co founder of Home connect. Today's show was produced by Edith Russlo, edited by Robert Smith, and engineered by Amanda kay Wong. I'm Jacob Goldstein, and we'll be back next week with another episode of What's Your Problem.

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