People think that in a world of rising energy costs, you have to choose between being comfortable and saving money. Smart meters, which bill you more when energy is expensive, encourage this view. Furthermore, they leave it up to homeowners to check the meter, make a spending decision, and adjust their appliances accordingly.

Most people will not do this. They will live as their personal commitments and preferences demand, regardless of the daily price of energy. Watched over by their smart meter, their energy prices are likely to go up.

History is littered with examples of business models that continued to burden the consumer with cost and inconvenience after technology moved on. Budget airlines stripped out cost and offered value back to the consumer in return for advance, online purchases.

Amazon stripped out supply-chain costs and built a profile of each user to suggest products, building scale that meant lower retail prices. The internet transformed much of the old telecoms industry itself with cheap online communications.

In every case, technology removed power from incumbents and placed it with consumers. Energy is the latest sector to be hit by this seismic shift. Smart homes manage energy not according to the priorities of utility companies, but those of consumers; namely cost-reduction, comfort and convenience.

Non-invasive, wireless hardware married to smart control algorithms – accounting for user occupancy, building efficiency and external temperature – cut out waste by up to 40% without having a negative impact on comfort.

Such effective cost cutting may seem like a threat to the energy industry, but smart homes are also its greatest resource for grid flexibility. From Germany to India, supply-demand imbalance on power grids is one of the greatest economic and social threats of our time. Residential properties are the single greatest burden on the grid and the cause of energy peaks. Yet no attempt has been made to incentivise home owners to reduce grid peaks since the night-time storage tariffs of the 1960s.

Smart homes can offer planned demand reduction if three conditions are met. First, such ‘demand-response’ must be guaranteed via automated, real-time controls. Second, it must not impact upon consumers’ lives, which means engineering homes around energy storage. Third, consumers must receive a fair deal for using their capital to resolve an expensive grid problem.

Smart homes are therefore essential if we are to move from leaky, centralised grids towards efficient, decentralised grids built around flexible generation, use and storage of power.

By sharing value between consumers, energy utilities and governments – the latter, via facilitating an improved energy mix and better energy security – such grids offer a win-win-win situation that will be central to continued growth and efficiency.

About the author: Colin Calder is founder and chief executive officer of PassivSystems Ltd, a UK-based provider of smart home energy management platforms, selected as a World Economic Forum Technology Pioneer 2013.

Photo: Reuters/Steve Marcus