Preparing for the electric future: Why HEMS are becoming important for the energy transition

As a platform to monitor and manage energy consumption in the home, HEMS can unlock unprecedented savings for homeowners by unlocking greater flexibility.

In this article we will delve into the world of HEMS, exploring why it is important and why it excites us, as well as introducing some of the questions that this flourishing market still poses.

HEMS is foremost a solution for homeowners to improve the energy efficiency of assets in the home and make cost savings. But its impact goes even deeper. HEMS are an absolutely essential part of the renewable energy transition, playing a crucial role in integrating renewable energy into the grid.

The growth of renewable energy has brought, along with its overwhelming benefit of reduced greenhouse gas emissions, challenges which have made the energy market more uncertain. The current grid was built when fossil fuels, a reliable source of energy, were dominant. However, as fossil fuels are now being phased out in favor of renewable energy, the grid receives a more intermittent power supply, dependent on unpredictable sources of energy such as wind or solar which tend to be more decentralized. The pressure is further compounded as the rapid electrification of other sectors such as transportation adds demand to the grid. These changes mean the grid is set to become more unstable and power supply less reliable.

HEMS supports this integration of renewable energy into the grid by enabling homeowners to take advantage of the fluctuant prices that comes with a grid supplied by renewable energy. HEMS optimize energy usage in the home through load shifting, peak shaving and energy storage management, ultimately reducing costs for homeowners. Another scenario where customers can benefit from HEMS is by utilizing it to manage decentralized energy generation e.g. PV installation, helping customers become more independent and even earn money by providing power to the grid. HEMS also has the potential to reduce pressure placed on the grid during periods when demand exceeds supply, although this is unlikely to be a problem in countries like Germany where the grid is already stable. Above all, HEMS supports the energy transition by enabling end customers to unlock the benefits of renewable energy integration through energy optimization.

In Germany, the importance of HEMS is boosted by the government’s smart meter roll-out. While smart meters are comparatively widespread across the rest of other Europe, Germany has lagged behind for some time, with only 1% of households being equipped with a smart meter in 2022, compared to over 99% in Denmark, Italy, Spain and Sweden - despite Germany having much higher adoption of HEMS systems overall. In a serious commitment to digitalizing the energy transition, the German government has planned a large-scale smart meter rollout which is mandated to begin in 2025 and aims to reach 95% of residential and small business consumers up to 100,000kWh by 2030. The widespread adoption of smart meters will enable more homes to install HEMS, as smart meters enable the use of flexible tariffs by recording real-time energy use – the data needed for HEMS to perform its energy optimizing activities.

Energy management systems (EMS) also have uses beyond the home. Naturally the same benefits can be garnered from any building, for example an office block, but they can be applied to other energy management scenarios too. For example, EMS for electric vehicles (EVs) can optimize the charging process for commercial fleets of trucks and buses by balancing the load, regulating charging rates, and scheduling charging sessions. They help charge point operators optimize charging times to improve customer experiences and save costs.

The interaction between HEMS systems and grid operating systems is crucial for optimizing energy usage and maintaining grid stability. HEMS systems can communicate with grid operators to balance supply and demand in real-time, especially as renewable energy sources, which are inherently variable, become more prevalent. This interaction is facilitated by smart grid technologies that enable two-way communication between homes and the grid. Advanced metering infrastructure (AMI), demand response programs, and energy management software are examples of supporting technologies that help integrate HEMS with the broader grid system. These technologies ensure that HEMS not only benefits individual homeowners but also contributes to the overall efficiency and resilience of the energy grid

For end users, the efficiency benefits of HEMS is its main advantage. HEMS connects devices in the home such as PVs, heat pumps and EVs in order to manage their flow in the most efficient way. For example, when the sun is shining, allowing the PV to generate solar energy, the HEMS can charge the home’s EV at this time. Meanwhile, HEMS also manages energy from the grid, purchasing energy when prices are at their lowest.

The subsequent price benefits for homeowners are attractive. Flex marketing, meaning monetizing the flexibility of assets by feeding energy back into the grid if there is excess power according to varying electricity prices and grid capacity, is a business model homeowners can take advantage of. Through optimization on the spot market, homeowners can make significant cost savings. In the future, when the German grid offers more transparent distribution grid data, users could unlock even higher savings with grid-serving optimization via grid fees.

Meanwhile, the options for self-sufficiency that HEMS brings is an added advantage of energy optimization for homeowners. With HEMS managing energy flows, households can seamlessly install energy generating hardware such as PVs and use this self-generated renewable electricity to power devices within the home. In addition to the psychological benefits of generating their own energy, by buying less energy from the grid, homeowners can reduce energy costs and enjoy the added security of energy stability. The grid also benefits from reduced demand as homes equipped with HEMS can utilize their own energy generation during periods of peak demand.

We are particularly excited about HEMS because, due to the energy transition and Germany’s smart meter roll-out, the market is growing. As soon as assets like a PV module, battery storage, wallbox or heat pump are installed in the home, it makes financial sense for homeowners to install a HEMS to optimize the utilization of these assets. As sales of these assets continue to rise, the market for HEMS providers is also growing.

Furthermore, the advantages of HEMS will increase as electricity prices become more flexible. Despite gas prices currently trending downwards, non-renewables are certainly not the fuel of the future – reports suggest fossil fuel resources could be depleted as early as 2060 if we continue using them at our current rate. Instead, the future will be electric, according to research showing that electricity demand will double by 2050 compared to 2023 levels as the electrification of mobility, buildings and common industrial processes takes place. As the mobility and heat sectors are being electrified, gas heating and combustion cars will be replaced by heat pumps and EVs. As we enter the electric future, HEMS can link these different sectors and make sure that the electricity available is used in the most efficient way.

The advantages of HEMS as we shift to a more renewable-energy dominated market are clear, suggesting HEMS is here to stay. To help consolidate the growth of the HEMS market, there are still some open questions that remain topics of debate.

Question 1: Who pays for HEMS? There are a few players in the market who could theoretically foot the bill for HEMS. Technically homeowners could pay for HEMS themselves, as they are who will financially benefit from it. But it's far more convenient for homeowners to simply buy a solution that has been tested before and guaranteed to work. The more common scenario is that a HEMS provider partners with hardware manufacturers, electricity providers and full-service-providers of energy solutions. These companies buy the HEMS solution and sell it to their end customers as part of a package - for example, a PV provider could offer not only the device itself but also the software needed to ideally make use of the generated energy. This package approach is the most convenient, with end costs falling to the end customers, who can earn back the costs through the cost efficiency given to them by HEMS.

Question 2: How to ensure acceptance among users? For many homeowners, HEMS is still a new concept and awareness of the benefits of HEMS is not yet widespread. Securing interest in externally controlling assets within the home is essential to the success of HEMS. A 2020 study based on questionnaires carried out in New York and Tokyo found that 60% of users displayed a willingness to pay for a HEMS in their home when informed of the money saving, automatic control and environmental impact functions of HEMS. The study also found that willingness to adopt HEMS increased as the proposed monthly costs decreased. Such studies provide a starting point in the movement to increase acceptance of HEMS, highlighting the importance of educating potential users and finding the ideal costing to encourage users to invest.

As we move closer to a fully digital and electric future, HEMS will prove central in the success of the energy transition, bringing benefits to homeowners, grid operators and the environment. We want to contribute to the success of HEMS by investing in promising businesses in the space.

We are particularly interested in cloud-based home energy management systems. While home energy management systems can be cloud-based, local, or hybrid, cloud-based systems offer advanced analytics, remote access and scalability advantages: Cloud platforms easily integrate with additional devices and systems, can be updated with new features and improvements without user intervention and can handle more complex data analysis and machine learning algorithms than alternative HEMS options.

Do you have a cloud-based home energy management system that needs support? We’d love to hear from you.