What lies behind the word Smart Cities?

The economic, financial and policy implications

Jorge Núñez FerrerCEU, 4/3/2014

Discussion topics

The what and why of Smart Cities Balancing objectives of cities Transition to a Smart City The role of (right kind of) standards The city planning revolution The challenges of efficient integration Creating value The need for new Financial models EU strategy for Smart Cities, now and …

later? The clash of systems

What are and why Smart Cities? Is smart synonymous with unnecessarily

complex and expensive? Are there stupid cities too? Is this a corporate invention to sell

gadgets? Do we need them? Are we smart enough to live in a smart

city? Is a smart city a controlling-restrictive

city? Is it worth the cost?

Smart Cities are not an option

In the last 40 years urbanisation has expanded as much as the previous 4000 years. To double now in the next 40 years.

Urban population grows now by 150.000 people a day!!!

20113.6

billion52% of world

population

20506.3 billion

67% of world population

72%

The world is becoming more urban

… and older

Source: Global City Indicators Facility, Cities and Ageing, University of Toronto, GCIF Policy Snapshots No. 2, September 2013.

Other factors:

In Europe Cities…. Generate 85% of GDP Consume 70% of energy Emit 70% of greenhouse gases

Without addressing city inefficiencies global or European growth, energy, climate and environmental objectives will simply fail

Common objectives in any city• Economic & Financial Sustainability

– Wealth Generation, attractiveness to businesses and citizens, economic resilience

– Ability to cover investments, new financing models, strong link with economic sustainability

• Social Sustainability (Inclusive city) – Equity, stakeholder involvement, understanding

behavior

• Environmental Sustainability– Resource efficiency, emissions, environmental

quality, risk management

Challenges

Developing smart cities is NOT about city authorities procuring technologies

It is not only on supporting technology innovation

It is about: Developing the right environment for smart solutions to

be effectively adopted and used. Being inclusive: Citizens are not only inhabitants, but shapers

of the smart city as prosumers of city services

Partnering with industry, financiers and end users…this is sometimes a non-traditional partnership.

Reforming and adapting the administrative, finance and procurement mechanisms to take into account the lifecycle of new infrastructures

Integration and efficiency gains

Cities are in general run rather inefficiently

Utilities and services need to collaborate and infrastructures need to integrate.

For this it is important that companies and authorities collaborate

Key is open data – in standardised formats

Infrastructure and services integration

Source: IEC (2014, P.26)

The crucial role of standards

To allow planning, benchmarking and technology compatibility standards are taking a central role

Standards ensure collaboration, allow replicability, enable the creation of new markets

International bodies ISO, IEC European CEN CENELEC, ETSI National BSI, etc.

Role of standards Standards enable smart cities: an

aligned approach for design, development and operation of the system of systems

Standards increase the number of solutions, increase competition and benefit customers (cities and citizens)

Standards guarantee: Specified performance levels; Compatibility & Interoperability Increase competition

Standards allow for smart opportunities

The planing challenge

a) Planning requires:1. understanding the OBJECTIVES of the city2. a holistic approach – INTEGRATION3. Knowledge of the cities needs today and good

projections – INDICATORS4. Know the stakeholders and their role5. TECHNICAL KNOWLEDGE6. CAPACITY TO ADAPT in time. Investments risk

locking the city for a long time into a specific infrastructure. Technologies need to be compatible, interoperable.

b) There will be a need for REGULATORY AND PUBLIC PROCUREMENT REFORM

Reforming the procurement process

Traditional procurement is generally: Anti-innovation Seeks the lowest investment cost

There is a need of further reform: Include the lifecycle costs of projects Encourage innovative procurement Focus has to move away from CAPEX to OPEX

Administrations need to learn to partner with private sector - PPPs

Creating value for citizens

Citizens are key Not only as users, but as prosumers They will be important providers of

services Planning needs to take into account the

market opportunities of smarter systems, enhancing entrepreneurial possibilities

Improving opportunities and living standards

The Financing Challenge

We are facing a financial crisis Municipal budgets weak Municipal finance providers are in trouble Banking regulations affect long term

investments We need new business models – new

ways to address the challenges ahead New cooperation mechanisms New administrative structures New financial instruments New regulatory frameworks

Where to get the money?

The monoline insurance companies that provided bonds and guarantees got severely hit by the crisis

The banking sector regulations (Basel III) make infrastructure lending less interesting: higher capital reserves and additional financial save-guards in line with loan size and duration

Taxation avenues are limited

Emerging financial mechanisms

Green bonds Guarantees In EU:

Innovation - EIP:▪ Horizon 2020 ▪ Risk Sharing facilities

Deployment:▪ EEEF, etc.▪ Project bonds▪ Juncker’s investment initiative

The EU’s main challenges DEPLOYMENT EU does not manage to bring innovations

to the market. Lack of scaling up and deployment Low risk appetite in the market EU market is inflexible and fragmented EU funding focused on innovation National restricted due to economy and

state aid rules Some funding available through structural

funds, Cohesion Funds and CEF External Industrial Competition

Is Junker’s Investment Initiative an option?

Potential support from plan:

Guarantees for green bonds – EU level for Energy and for Smart Cities (to cover the receding investments from banks and other financiers)

Equity and guarantees for innovation.

Risk: Uptake of projects that would be done anyway due to political pressure – 315 bn in 2 years.

‘Energiewende’ clashes

Two models: Mainly large but decentralised producers with

interconnectors Decentralised energy Islands

Large producers are tending to prefer 1 despite competition

Second option linked with storage can change the landscape of energy radically

Emerging concern: Stranded assets

Model 1– VPP – large distributed system

+ Interconnector

s

Source: http://www.eu-ecogrid.net/images/Pictures-and-photos/Bornholm.jpg

Model 2 - energy islands

Links

www.ceps.eu Cities: The Juncker Commission should not miss this key to growth, jobs

and the environmenthttp://www.ceps.eu/book/cities-juncker-commission-should-not-miss-key-growth-jobs-and-environment

www.iec.ch White paper – Orchestrating Smart Citieshttp://www.iec.ch/whitepaper/smartcities/?ref=extfooter