Preparing for the Electric Future: Why Home Energy Management Systems (HEMS) Are Key to 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 Smart Home Energy systems like HEMS and grid operating systems is crucial for balancing supply and demand in real-time. Smart grid technologies facilitate two-way communication between homes and the grid, integrating HEMS with broader grid systems. Advanced metering infrastructure (AMI), demand response programs, and energy management software support this integration, ensuring that HEMS contribute to both individual homeowner benefits and overall grid efficiency.

For homeowners, the efficiency and cost benefits of HEMS are significant. By connecting devices like PVs, heat pumps, and EVs, HEMS manage energy flows to maximize savings. For instance, HEMS can charge an EV when solar energy generation is at its peak or purchase energy from the grid during low-price periods.

HEMS also enable homeowners to monetize their energy flexibility through "flex marketing," feeding excess energy back into the grid based on fluctuating electricity prices. 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.

Beyond financial benefits, HEMS enhance self-sufficiency by allowing households to generate and use renewable electricity on-site. This reduces reliance on the grid, lowers energy costs, and provides stability during peak demand periods. The psychological and practical advantages of energy independence further underscore the value of HEMS.

At EnBW New Ventures, we are excited about the growing market for HEMS, driven by the energy transition and Germany’s smart meter rollout. As assets like PV modules, battery storage, wallboxes, and heat pumps become more common, the demand for HEMS to optimize their utilization is also increasing.

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.

The cost of HEMS can be covered by homeowners, hardware manufacturers, electricity providers, or full-service energy solution providers. Technically homeowners could pay for HEMS themselves, as they are who will financially benefit from it. 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.

Awareness of HEMS benefits remains limited among homeowners. 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. Educating potential users and offering affordable pricing are key to driving adoption.

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.

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