What are the challenges being faced by cities that want to become smart? Osborne Clarke surveyed 300 senior executives from technology companies, investment funds, banks, consultancies and government officials across Europe and found widespread interest in smart cities. Our report looked at what was needed to enable innovation and, in parallel, what was holding back the implementation of innovation.
Interestingly, themes arising from the survey included perceptions that smart technology was still being developed and there is lack of funds available for the roll out. At our London event to launch the report, we hosted a panel-led discussion which, together with feedback comment on our report, picked up that such perceptions, whilst true in part, do not reflect the full picture.
Smart technology continues to be developed but much of it is with us already. Existing technologies range from smart meters to connectivity in vehicles and building power systems that adapt to time-of-use energy tariffs. It is the application of such technology that is key to changing our urban environment, the funding of its roll out and the stimulation of human behaviours to leverage such innovations. Different approaches are being adopted to reflect the maturity of existing infrastructure which may be a challenge but not necessarily an obstacle. Masdar City in the UAE is an example of a new-build smart city whereas the European model is much more one of retrofit.
A crucial element to the roll out of the smart innovations will be the funding. Feedback has been clear that there are funds looking to invest in not only the development of smart technology but also the capex for its implementation. However, it is also clear that new business models need to evolve in order to properly reward the deployment of such funds. Such business models need to make sure rewards and benefits flow to the parties responsible for funding/installing the technology where otherwise traditional funding models creating a disconnect between the cost/effort and the benefits.
A lot of European reaction to the funding model has been along similar lines to the support for renewable energy project construction – state aid through subsidy. This even been seen in practice with the Italian government passing legislation for subsidisation of energy efficiency retrofit expenditure in public buildings. However, these calls need to be balanced between the hurry to incentivise smart development with long term stability in the development of infrastructure. Renewables subsidisation in Europe has led to political uncertainty impacting the funding of projects with Italy serving as an example of a country in which subsidies underpinning project finance were retrospectively cut.
Free market economics would serve as a much better model for stability in a long term infrastructure investment programme – the benefits of smart cities, if distributed appropriately, should be incentive enough to pursue the relevant investment.
Adoption of smart city technologies is already happening and an identified common thread across those live projects is collaboration, between infrastructure owners, funders, technology providers and beneficiaries. Examples include:
- Virtual power plants aggregating offset capacity to sell of the spot energy market at times of peak demand.
- Telematics providers collaborating with automotive manufacturers to derive data-based benefits for drivers and traffic management systems.
- Energy services companies collaborating with technology solutions to support the retrofit of commercial and public buildings, funded by a sharing of the resulting benefits.
Europe is therefore presenting opportunities for investment returns if the right model is found and also for well-funded technologies with a ready-made funding structure.
We will be sharing our thoughts along with those of our panel of experts at the event we’re hosting on 17 March Smart Cities: Enabling Innovation. Join us to learn more about technology and investment opportunities from US businesses who are well versed in privately funded innovations in the smart city developments of Europe.