01.15 Smart Cities in Europe

Smart cities in Europe
Enabling innovation
$
Smart cities
About Osborne Clarke
Osborne Clarke is an international legal practice. We have 1,000 employees,
including 180 expert partners and 600 lawyers, working in 8 countries. Our offices
are located in Amsterdam, Barcelona, Brescia, Bristol, Brussels, Cologne, Hamburg,
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Silicon Valley and Thames Valley.
ii | Smart cities in Europe

Contents
About the research..................................................................................................................2
Foreword...................................................................................................................................3
Executive summary.................................................................................................................4
Cities must smarten up
Financing is the greatest challenge
Bringing smart technology to market
Regulation needed to create the right frameworks for smart city investments
Collaboration is key in overcoming these obstacles
Introducing smart cities..........................................................................................................6
W hat is a smart city?
Four major components of smart cities
Explaining the four components of smart cities explored in this report
Enabling smart cities: Understanding the obstacles and creating solutions................... 10

inance the no.1 issue
F
Smart technology major challenges exist to its development and implementation
How to incentivise smart city investments
Case study: The role of government in accelerating automated demand response in the UK
Engaging citizens is essential
Stable regulatory frameworks are very important
UK............................................................................................................................................24
Germany................................................................................................................................26
Spain.......................................................................................................................................28
Italy.........................................................................................................................................30
Belgium.................................................................................................................................. 31
The Netherlands....................................................................................................................32
France.....................................................................................................................................33
Conclusion: Where next for smart cities in Europe?............................................................34
Smart cities in Europe | 1

About the
research
Respondent breakdown by employer Respondent breakdown by country
5%
10% UK
Germany
15% Spain
50% 23%
Italy
10%
Belgium 17%
10%
20% The Netherlands
France 10% 10%
Corporate Other
Equity investor 10%

Consultancy 10%
Government/multilateral institution
Other
This report provides insight into the development of smart cities in Europe. Specifically, it
focuses on how the challenges cities face in becoming smart can be overcome. The findings
are based on a survey of 300 senior executives from technology companies, investment funds,
banks, consultancies and government officials. The survey was conducted in October and
November 2014. Survey respondents were located in Belgium, Finland, France, Germany, Italy,
the Netherlands, Norway, Spain, Switzerland, Sweden and the UK. The report was written in
collaboration with The Lawyer Research Service, a division of The Lawyer.
To supplement the survey findings, interviews were conducted with the following individuals:
Rene Savelsberg (the Netherlands), CEO, Chrysalix SET
Carol Connolly (UK), Programme Director, Glasgow City Council
Scott Petersen (UK), Business Development Director Smart Grid Solutions, Europe & North Africa, Honeywell Building Solutions
Richard Miller (UK), Deputy Director, Innovation in Industry, Innovate UK
Allister Wood (UK), Head of Infrastructure & Energy, Morgan Sindall Investments
John ODonohue (UK), CEO, PowerOasis
Mike Lewis (UK), Vice President and General Manager EMEA, Space-Time Insight
Mark Stokes (UK), Managing Director, Utilyx Asset Management
Jo Van Onsem (Germany), Group President International Transportation and Government, Xerox
Albert Fischer (the Netherlands), Managing Director, Yellow&Blue Investment Management
Interviews were also conducted with the following individuals from Osborne Clarke:
Luis Castro (Spain), Partner, luis.castro@osborneclarke.com
Stefan Deswert (Belgium), Partner, stefan.deswert@osborneclarke.com
David Ferris (UK), Partner, david.ferris@osborneclarke.com
Thomas Funke (Germany), Partner, thomas.funke@osborneclarke.com
Matthew Germain (UK), Associate Director, matthew.germain@osborneclarke.com
Simon Spooner (UK), Partner, simon.spooner@osborneclarke.com
Piero Vigan (Italy), Partner, piero.vigano@osborneclarke.com
2 | Smart cities in Europe

Foreword
According to various sources, the urban smart city alone. Its going to require rallying
population surpassed the rural population expertise around some pretty big ideas
in the world in 2007. The trend towards and then collaborating to overcome the
urbanisation is expected to increase challenges, sharing best practice, which, in
dramatically in the coming years to the point turn, will enable innovation and accelerate
that by 2050, almost 70% of the world the development of smart cities. Many of the
population will be urban and many cities will elements that add up to making cities smarter
have over 10 million inhabitants, consuming are ones in which Osborne Clarke flourishes:
the vast majority of the worlds resources. We technology, finance, energy, transport,
need to build smarter cities to cope with larger infrastructure to name but a few. This report
Simon Beswick populations, who are living longer and more contains some views from established smart
CEO densely, as well as remaining economically cities leaders (to all of whom, many thanks!)
Osborne Clarke International and socially competitive in an increasingly
simon.beswick@osborneclarke.com globalised market. These challenges are Together, we believe, we can make both
faced by all cities no matter their stage of incremental improvements and step changes
development or which continent they are on. in delivering smarter cities and look forward
to working with our clients and the cities in
Equally, no single city, country, government, which we operate to make a difference.
economic bloc, or company can build a
$

Executive
summary
Cities must smarten up Financing is the greatest

European cities are not that smart. According challenge
$ $ $ $
to research by the European Parliament
$ $ $ $
By $ margin, the biggest obstacle to the
some
released in January 2014, 51% of Europes
468 cities with a population over 100,000 $ $ $ $ $
development of smarter cities is funding.
Survey respondents identified a lack of
are smart cities.1 While this may sound like a $ $ $ $
investment as the greatest obstacle to the
sizeable proportion, cities only need to have $ $ $ $ $ of intelligent transport systems, the
roll-out
developed a strategy or plan to implement
$ second most important obstacle to the wider
a single smart city initiative to qualify as The overarching use of energy storage and the third most
smart. The reality is that, of this group, only
28% have actually fully launched at least one message from important obstacle to greater adoption of
building control systems.
smart city initiative. The remainder are still at the survey
piloting stage, or in some cases even earlier. The best way to address this funding gap is
This report outlines why progress thus far
data is that the public private partnerships almost three-
has been so slow and what can be done to challenges to quarters of survey respondents stated that
accelerate the development of smart cities. developing public private partnerships will be the most
effective way to fund smart infrastructure
Urbanisation is making smart cities more smarter cities are programmes in the next three years. However,
important. Globally, 54% of the worlds large but there the majority of survey respondents (69%)
population live in cities, a figure the United
is willingness believe that government institutions alone
Nations predicts will rise to 66% by 2050.2 In
will be the most active investors in smart city
Europe, the proportion of the population that among the infrastructure during the next three years.
live in cities (73%) is already much higher
than the global average. For cities to manage
private sector There is a clear disconnect. To bridge the
gap, the private and public sectors, banks,
an ever-increasing influx of people, they must and at the investment funds, technology companies
adopt new smart technologies and processes government and the advisory community need to work
to remain attractive places to live and work.
level to find together to develop funding models that
But, first, what is a smart city? The answer is not satisfy all parties.
solutions.
that obvious. In essence, smart cities are ones Project finance structures may have a
that deploy innovative technology, create more role to play over two thirds (69%) of
innovative ways of delivering public services survey respondents believe project finance
and make better use of data with the ultimate structures will be used to fund the roll-out
objective of becoming more prosperous, of smart technology in the next three years.
sustainable and a better place to live. The types However, as discussed in greater depth later
of smart technology and the smart processes in this report, structuring project finance
that help achieve this goal are numerous. This deals for smart technology infrastructure is
report focuses on four of the key components difficult.
smart grids, energy storage, building efficiency
and intelligent transport systems.
1
European Parliament Policy Department (January 2014), Mapping Smart Cities in the EU
2
United Nations (July 2014), World Urbanization Prospects

Executive summary
Bringing smart frameworks as the third and fourth most

important obstacles to the roll-out of smart
technology to market meters and energy storage respectively.
Our survey data reveals a number of more Progress is being made at the European
fundamental challenges to realising smart cities. level on establishing regulations governing
A lack of proven and adequate technology the use of smart technology. Changes to
was the most frequently cited obstacle to the EU Data Protection legislation are expected
roll-out of energy storage technology and the to be agreed in 2015, while the Connected
fourth most frequently cited obstacle to the Continent package of proposals designed
implementation of intelligent transport systems. to create a single European market for
Once again, one of the main challenges electronic communications is presently
companies face in bringing viable smart passing through the European Parliament.
technology to market is funding. Regulatory changes represent both
Even when smart technology is developed challenges and opportunities for producers
and proven, significant obstacles remain to its and consumers of smart technology, so any
implementation. For a start, while many smart changes need to be communicated clearly.
technologies have significant benefits to cities Our survey data highlights some additional
as a whole, benefits for an individual are often regulations that would help accelerate
perceived to be small and unclear, limiting smart cities. Over 95% of respondents
consumer demand. In fact, a lack of consumer believe regulations should be introduced
demand for solutions was the most frequently supporting the interoperability of technologies
cited obstacle to the roll-out of smart meters across different markets. In addition, 79%
and building control systems by our survey of respondents believe there should be a
respondents. Privacy and security concerns minimum standard for sustainable construction
were the second most frequently cited obstacle. of new and refurbished buildings.
Private companies, therefore, must not just
focus on creating technology that works, but
also business models that create a compelling Collaboration is key
proposition for consumers.
in overcoming these
obstacles
Regulation needed to
The overarching message from the survey data
create the right frameworks is that the challenges to developing smarter
for smart city investments cities are large but there is willingness among
the private sector and at government level to
Governments need to establish adequate find solutions. The answer lies in collaboration
regulatory frameworks to ensure smart between central government, local government,
technologies are installed across cities at scale. the private sector and financial investors. That is
Unfortunately, this is currently not the case. the greatest challenge.
Survey respondents identified unfit regulatory

Introducing
smart cities
What is a smart city? business models; use data with the intention
It is very of being more efficient and transparent; and
Ask a hundred government officials, senior increase citizen engagement to improve the
corporate executives or investors what a
important for prosperity and sustainability of cities.
smart city is and you will probably get a city planners
Cities need to become smarter. The United
different answer each time. For some, a smart to have clear Nations estimates that 54% of the worlds
city is one that adopts innovative technologies
capable of improving the life of its citizens. objectives population currently live in urban areas. By
This technology might include energy- about what 2050 this figure will rise to 66%. In Europe
efficient systems that reduce energy use and the proportion is even higher according
they want smart to the United Nations, 73% of Europes
reliance on fossil fuels, intelligent transport
systems that enable citizens to travel more cities to deliver population currently live in urban areas, a
figure that is expected to rise to 80% by
efficiently, be that in private vehicles or using before selecting 2050.3 It is, therefore, more important than
public transport, or new communication
technologies that improve public safety and
which smart ever to ensure that cities are sustainable and
emergency response services. city initiatives are structured to accommodate ever larger
numbers of people.
For others, the concept of a smart city means to pursue and
empowering citizens to improve their lives prioritise.
through better access to data and public
services. This might include easier access to
job vacancies or travel information, or a more
efficient way to book doctors appointments.
The possibilities are endless.
The reality is that smart cities encompass all

these things and more broadly speaking,
smart cities are those that: adopt and promote
innovative technology, processes and
3

Introducing smart cities
Which components of a smart city are most likely to: Four major components
of smart cities
4%
11% This report focuses on four major
Intelligent transport systems
components of smart cities smart grids,
improve
energy storage, building efficiency and
citizen Building efficiency/control systems
well-being intelligent transport systems. Smart cities
27% in your 58% obviously include a wide range of other
country? Smart grids (including smart meters)
important components but these are excluded
Energy storage from the scope of this report.
In considering these four components

we have looked at the challenges of
implementing each one, why certain
components are preferred to others and how
8% 6% the impact of their adoption is very different.
Intelligent transport systems For example, our survey data shows that the
25%
aspect of smart cities most likely to improve
reduce energy Building efficiency/control systems
citizen well-being is intelligent transport
consumption in
your country? systems. However, only 6% of survey
Smart grids (including smart meters)
respondents believe intelligent transport
61% systems are the component of smart cities
Energy storage
most likely to reduce energy consumption.
Instead, the majority of survey respondents
(61%) believes building efficiency and
control systems are the component of smart
cities most likely to deliver reduced energy
consumption. Meanwhile, survey respondents
22%
Intelligent transport systems believe that all four components of smart
30%
cities we are exploring are likely to contribute
increase
Building efficiency/control systems in almost equal measure to economic growth.
economic
growth in your In short, the survey data shows that it is very
country? Smart grids (including smart meters) important for city planners to have clear
23%
objectives about what they want smart cities
Energy storage
25% to deliver before selecting which smart city
initiatives to pursue and prioritise.

Explaining the four components of
smart cities explored in this report
Smart grids
A smart grid uses advanced technology and software to obtain, analyse and act on information
relating to energy generation, transmission, distribution and consumption, to improve the
reliability, efficiency and sustainability of the entire network. Discussion about smart grids is often
dominated by smart meters, which monitor energy usage of individual homes or any building that
consumes energy in real time. However, smart grids also involve the use of intelligent software
to collect, analyse, visualise and then control components of the grid and appliances (such as
fridges and lighting) connected to the grid to, in effect, create a virtual power plant.
Smart grids offer multiple benefits. Customers can benefit from more accurate and timely
billing, as well as new time-of-use tariff options. Electricity retailers can save significant costs
by undertaking meter readings automatically, rather than getting them checked manually. Most
importantly, smart grids enable transmission and distribution network operators to perform more
accurate load forecasting and obtain better insights into potential faults on the grid, enabling
them to prioritise investment.
EU legislation requires smart meters to reach an 80% market penetration by 2020 in all
EU Member States, subject to a positive outcome of a cost-benefit analysis. The European
Commission estimates that around 72% of European electricity consumers will have electricity
smart meters by 2020.4
Energy storage
Energy storage includes a wide range of electrical, chemical, mechanical and thermal
technologies that store electricity for multiple applications. These include frequency and
voltage control, peak shaving and continuity of energy supply. Due to its intermittency, energy
storage is also an essential enabler for the greater adoption of renewable energy on the grid,
as well as distributed generation.
Energy storage is an important component of smart cities because it enables local generation
to supply local buildings directly, thereby bypassing the national grid. John ODonohue, CEO of
PowerOasis, explains the advantages of this approach. Matching local generation with
local demand using storage is very beneficial, he said. Consumers should see a
30-40% saving on their electricity bills. At a macro level, there is around 10-15% of
losses during the transmission and distribution of electricity. This capability, which
we hope to demonstrate at our project in Swindon powering 4,000 homes, will be
applicable in lots of different cities.
4
European Commission (June 2014), Benchmarking smart metering deployment in the EU-27 with a focus on electricity

Explaining the four components of
smart cities explored in this report

Intelligent transport systems include a range of technology, software and physical
infrastructure that makes travelling around cities more efficient. Intelligent transport
systems can include new methods of travel, such as electric vehicles, new electronic
payment systems and new business models, such as car-sharing.
Intelligent transport systems are important given the increasing economic impact of
congestion. A report released in October 2014 by INRIX and the Centre for Economics
and Business Research concluded that traffic congestion will cost the UK economy
US$33 billion annually by 2030, a 63% increase on the cost in 2013. The cost to the
German economy is estimated to reach US$44 billion by 2030, a 31% increase on 2013. 5
A wide range of intelligent transport systems has been implemented across Europe,
from the central London congestion charging zone and Oyster cards in the UK, to smart
parking networks in Barcelona and smart cycling networks in Copenhagen. However, a
lack of funding and technology standards have hindered the more widespread roll-out of
intelligent transport systems throughout Europe.
Building efficiency
Building efficiency involves the integration of a broad set of technologies, software and
materials into the built environment to improve buildings energy efficiency. The EU has
set a target to reduce energy demand by 20% by 2020. Much of this reduction will be
achieved by reducing energy consumption by buildings.
Building efficiency does not just save costs. Through initiatives such as demand response,
it also enables building owners to generate revenues intelligently from their assets. For
example, by installing monitoring and control technologies, building owners can generate
revenues by turning energy consuming equipment off or down during times of peak
demand.
5
INRIX and the Centre for Economics and Business Research (October 2014), Economic &
Environmental Impact of Traffic Congestion in Europe & the US
Enabling smart cities
Understanding the obstacles and
creating solutions
Although a large number of successful smart Finance the no.1 issue

city initiatives already exists in Europe, to Many local
date their development has been slow, small A lack of funding is the major obstacle to the
scale and often restricted to the largest
authorities must realisation of smart cities in Europe. Survey
cities. A report by the European Parliament focus all their respondents identified it as the number-
released in January 2014 found that only resources on one obstacle to the roll-out of intelligent
51% (240 cities) of the 468 cities with a transport systems, the second most
population of over 100,000 in the EU-28
providing basic important obstacle to the implementation of
have implemented, proposed or have a public services energy storage and the third most important
obstacle to the wider use of building control
strategy for at least one smart city initiative. rather than systems.
However, within this group, only 28% have
actually fully launched at least one smart city new, innovative
Both private-sector companies and local
initiative, with the rest still at the planning or and sometimes government authorities that might want
piloting stage.6
untested smart to invest in the roll-out of smart city
infrastructure are facing financial difficulty.
Our survey data reveals a number of city initiatives
obstacles that need to be overcome for Local authorities across much of Europe are
smart city initiatives to be implemented where the more focused on balancing budgets than
faster and more widely. Perhaps the most net benefit is making sizeable investments. In this context,
significant finding was that obstacles vary many local authorities must focus all their
sometimes hard resources on providing basic public services
depending on the type of smart initiative. For
smart meters, survey respondents identified to measure. rather than new, innovative and sometimes
social obstacles the lack of consumer untested smart city initiatives where the net
demand for solutions and concerns over benefit is sometimes hard to measure.
security and privacy as the two most
In the public sector, the reality is
important obstacles to their more rapid and
that significant year-on-year cost cuts
widespread roll-out. However, for energy
of up to 20% to 30% are necessary,
storage, survey respondents identified a
so there is limited capital budget
lack of proven and/or adequate technology
available for smart investments such
as the most significant obstacle. A lack of
as energy efficiency, explained Mark
consumer demand was highlighted as the
Stokes, Managing Director at Utilyx Asset
greatest obstacle to the adoption of building
Management. However, what the
control systems, while a lack of finance,
public sector really needs is support
government incentives and outdated legacy
doing the due diligence in the first
urban infrastructure were selected as
place, identifying how and whether
equally important obstacles to the adoption
investments in energy efficiency are
of intelligent transport systems.
feasible.
6

creating solutions
What are the greatest obstacles to the roll-out of smart technology in the country where
you are located?
Lack of consumer demand for solutions
Smart meters 24%
Energy storage 9%
Building control systems 23%
Intelligent transport systems 8%
Lack of investment/finance
Smart meters 7%
Energy storage 20%
Lack of incentives to encourage investment

Smart meters 7%
Energy storage 19%
Regulatory framework not fit for purpose

Smart meters 16%
Energy storage 10%
Lack of proven/adequate technology

Smart meters 1%
Energy storage 31%
The lack of Creates security/privacy issues

Smart meters 23%
investment/ Energy storage
Building control systems
1%
11%
finance is the Intelligent transport systems 1%
no.1
barrier to the
Outdated legacy urban infrastructure
Smart meters
Energy storage
Building control systems
3%
2%
10%
19%
roll-out of Lack of conversation and agreement between local government departments

intelligent Smart meters
Energy storage 5%
8%
transport Building control systems

6%
systems. Lack of technology standards

Smart meters 7%
Energy storage 2%

creating solutions
So where could funding come from? Survey Where is investment in smart infrastructure programmes most likely to
respondents identify government institutions come from in your country in the next three years?
as essential in unlocking investment in smart Please select the top three investment sources with one being the biggest
infrastructure programmes over 70% of source of finance.
survey respondents predict that government
Government (through direct procurement or publicly-owned institutions)
institutions will be the most active investors
64%
in smart city infrastructure programmes in
the next three years. Half of respondents Institutional/infrastructure funds
expect direct procurement of smart solutions 50%
to be the most common source of investment Government (through government-backed funds, i.e. Low Carbon Networks Fund,
in smart infrastructure programmes, 16% European Investment Bank)
expect government-backed funds to be the 50%
most common source of investment, while Government (through direct grants/tax breaks)
6% expect government grants to be the 46%
biggest source of funding.
Utilities
Some governments are further ahead than 39%
others in investing in smart city infrastructure. Corporate investment (through private or publicly owned companies)
For example, the UK Government is investing 25%
directly in building energy efficiency through
Sovereign wealth funds
the Green Deal initiative. Through the
11%
initiative the Government provides loans
to homeowners to fund the purchase and Private equity/venture capital funds
installation of energy efficiency systems such 8%
as efficient boilers, cavity wall insulation or Bonds
double glazing. Importantly for homeowners, 7%
the loan is repaid from the savings generated
Crowd funding
from lower energy bills. The sum of loan
1% Rank 1 Rank 2 Rank 3
repayments and the new lower energy bills are
capped at the level of previous energy bills,
meaning there is no net cost to homeowners.
The predicted reliance on government Finance organisations and companies

funding during the next three years makes across the world are very interested
sense given the lack of smart infrastructure and they would like to invest in the
programmes that have been rolled out in transformation of the city landscape, but
Europe. The shortage of successful examples they dont have numbers that make them
means that private-sector investors are still feel comfortable yet, explained Richard
uncomfortable with committing capital to Miller, Deputy Director, Innovation in Industry
the sector. As more smart city infrastructure at Innovate UK (formerly the Technology
programmes are rolled out, interest from the Strategy Board). It will come down to
private sector should change. analysing the risk and potentially how

creating solutions
What is the most effective financing source available for investment risk can be split up between different
in single large-scale infrastructure projects (e.g. large-scale energy classes of investors. In terms of what
storage projects such as battery arrays)?
central government can do, we believe
Please select the top three investment sources with one being the biggest that the funding we are allocating is
source of finance. helping to provide examples of smart
technology performing well in cities.
Public-sector financing (e.g. grants, tax breaks, European investment, national
These enable small companies and
investment)
65%
investors to assume more risk and test a
new solution.
EU structural funds
61% While government funding is expected to
Project finance be the largest source of funding during the
48% next three years, survey respondents indicate
that some of the most effective funding
Public/private JVs
structures involve the private sector. The most
48%
effective type of financing used to fund smart
Private-sector resources (e.g. cash, corporate bonds, banking) infrastructure programmes varies depending
39%
on the type of infrastructure being financed.
Project bonds For single large-scale smart city infrastructure,
23% such as an energy storage facility or a
Municipal bonds
distributed renewable energy generation
14% Rank 1 Rank 2 Rank 3 project, survey respondents identified public-
sector financing, EU structural funds and
project finance as the most effective sources
of financing. However, for smart infrastructure
programmes involving the roll-out of hundreds
of thousands of small smart city components,
such as smart meters, building control systems
or vehicle to infrastructure sensors, survey
respondents identified public-sector financing
and private-sector resources as the most
effective financing sources.
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creating solutions
What is the most effective financing source available for investment in Project finance can attract private
the roll-out of hundreds of thousands of small smart city components investment, but its challenging
(smart meters, building control systems, vehicle to infrastructure
sensors)?
To entice investment from the private sector
into smart city infrastructure, infrastructure
Please select the top three investment sources with one being the biggest developers and building owners must offer
source of finance. financing structures that provide an adequate
Public-sector financing (e.g. grants, tax breaks, European investment, national risk-reward proposition. Survey respondents
investment) believe project finance structures, where
74% the procurement, installation or construction
Private-sector resources (e.g. cash, corporate bonds, banking) of smart infrastructure is funded using a
55% combination of debt and equity on a non-
recourse basis, are most likely to provide this
EU structural funds
the majority (70%) of survey respondents
54%
expect project finance structures will be used
Public/private JVs to fund the roll-out of smart technology in the
48% next three years.
Project finance
40%
While project finance structures have been
used extensively to fund construction of
Municipal bonds
infrastructure such as renewable energy
15%
projects for many years, thus far it has not
Project bonds been used widely to fund the roll-out of smart
9% Rank 1 Rank 2 Rank 3 infrastructure such as energy efficiency
equipment. If providers of energy efficiency
solutions can guarantee that the installation
of efficiency equipment will result in energy
savings through energy performance
To what extent do you agree that project finance structures will be used contracts, then investors may be able to
to fund the roll-out of smart technology in the next three years? commit to funding the installation of such
equipment with a contract in place that
obliges the building owner to repay investors
11% with a portion of the savings generated from
Strongly agree lower energy bills.
27% 3%
Agree However, as David Ferris, Partner at

Osborne Clarke, explains, there are inherent
Disagree difficulties in using project finance for energy
efficiency infrastructure. The thing banks
Strongly disagree like so much about project finance
59%
in renewables projects is the income
stream from the subsidy and revenue
from the sale of the energy, he said.

creating solutions
One of the current problems with the

use of project finance as a funding
Investors have a huge appetite to fund solution for building efficiency projects
energy efficiency projects but there are is that there is a disconnect between
funders requirements and the risks,
more complicated hurdles to get to financial which must remain with the customer
close than, for example, a renewable under this model. However, as certainty
energy project. This is because investors of energy supply and cost rise up the
boardroom agenda we anticipate a
cant see a clear delineation between the greater willingness to look at the risk
capital going in and the revenues coming profile associated with project finance
transactions and a shift away from the
out. These deals have worked in the public
market selling this sort of deal under the
sector such as the NHS in the UK because banner of energy saving guarantees.
there is more certainty that the building Once this happens we anticipate a
significant rise in the use of project
occupiers will still be there in 20-30 years. finance for building efficiency schemes.
Despite the challenges, this structure is

Matthew Germain
increasingly being utilised across Europe. For
Associate Director, Osborne Clarke
example, in July 2014, the London Energy
Efficiency Fund reached financial close on a
12 million loan for St Georges Hospital in
London. The loan will finance the installation
of energy efficiency technology at the
hospital, which is expected to reduce energy
costs by 25% while cutting 6,000 tonnes
of carbon emissions annually. Equipment
installed includes combined heat and power
boilers, solar panels and absorption chillers.
A number of modifications to the set-up of
the heating, ventilation and air-conditioning
systems have also been made. Underpinning
the loan is an energy performance contract
provided by British Gas guaranteeing a
certain level of energy savings. The energy
performance contract is expected to deliver
net savings of over 1 million per annum.
This transaction demonstrates how a well-
structured energy performance guarantee
can create an investable proposition.

creating solutions
71%
A new model is needed for intelligent transport systems and
Aside from project finance, survey respondents infrastructure, explained Jo Van Onsem,
have little confidence that alternative funding Group President International Transportation
structures such bonds will be effective in and Government, at Xerox. For example, the
attracting capital to smart city infrastructure Grande Paris initiative, which is building
projects. Given the inherent difficulties in out transport connections in Paris in a of survey
smart way, is looking for investments
structuring project finance transactions for
from the private sector to complement
respondents
smart city infrastructure, city planners, fund
managers, banks and technology companies public-sector financing. The European believe PPP
need to work together to identify new development banks are aware of this (public/private)
funding models that create an adequate type of initiative and are getting more
risk-reward proposition for investors. As David prepared to invest in good projects.
JV structures are
Ferris, Partner at Osborne Clarke explains, likely to be the
One way to encourage the public sector to invest
collaboration is essential to create new
in smart city infrastructure is to demonstrate the most efficient
financing structures.
return on investment (beyond the benefits of way to fund
the initiative itself) by exporting local knowledge
The smart city financing challenge can
and technological expertise to other cities,
national smart
only be solved through collaboration,
he said. This doesnt just mean both domestically and internationally. Thus far technology
collaboration between businesses, France is leading the way through exports to infrastructure
but also within them. Often investment India in October 2014 the French Ambassador
funds will have different teams investing to India announced that the French Government programmes
in real estate and energy projects. is in discussions with the north Indian state over the next
of Himachal Pradesh to provide investment
Investors, with input from people like three years.
us and input from those who can install and expertise to assist in the development of
the technology with performance smart cities across the state.
guarantees, will need to come up with
these structures. Thats the group that
To what extent do you agree that PPP (public/private) JV structures
needs to come together. are likely to be the most efficient way to fund smart technology
national infrastructure programmes?
Public-private joint ventures are crucial
Whatever financing structure is used, our
survey data reveals it is vital for the public and 7%
22%
private sectors to collaborate on financing Strongly agree
smart infrastructure 71% of survey 22%
respondents believe PPP (public/private) JV Agree
structures are likely to be the most efficient
way to fund smart technology infrastructure Disagree
programmes over the next three years.
Strongly disagree
There is good collaboration between the 49%
private and public sectors when rolling
out smart city initiatives, particularly

creating solutions
Smart technology Where is investment in smart technology companies most likely to

come from in your country in the next three years?
major challenges exist
Please select the top three investment sources with one being the biggest
to its development and source of finance.
implementation Private equity/venture capital funds
70%
For cities to implement smart initiatives,
technology that meets their needs and is proven Corporate investment (through private or publicly owned companies)
at scale must be readily available. For some 67%
components of smart cities this is currently not
the case. Indeed, survey respondents identified Government (through government-backed funds, i.e. Low Carbon Networks Fund,
European Investment Bank)
a lack of proven and adequate technology as
36%
the most important obstacle to the roll-out of
energy storage in cities. Government (through direct grants/tax breaks)
30%
Funding the next wave of smart city
technology innovation Utilities
To overcome this obstacle, financing needs to 28%
flow into early-stage technology companies
Government (through direct procurement or publicly owned institutions)
to ensure that new software and technologies 23%
are developed, tested and brought to market.
Potential investors in innovative smart Institutional/infrastructure funds
technology companies are very different 20%
from those that might invest in smart city
Crowd funding
infrastructure. Survey data indicates that
15%
venture capital and private equity funds will be
the most active investors in smart technology Sovereign wealth funds
companies 34% of respondents forecast that 4%
venture capital and private equity funds will be
the most active investors in smart technology Bonds
4% Rank 1 Rank 2 Rank 3
companies during the next three years, followed
by corporates (28%), and then governments via
government-backed funds (11%).
(US$76 million) and a 26% increase on the
Investment statistics confirm the survey data. average quarterly sum of investment in 2012
On average, venture capital and private equity (US$74 million).7 Although energy efficiency
funds invested US$93 million in European and energy storage technology only represent
energy efficiency and energy storage a proportion of the technologies that might
companies per quarter in the first three be deployed in smart cities, these statistics
quarters of 2014, a 22% increase on the highlight investors appetite in companies
average quarterly sum of investment in 2013 developing smart technology.
7
Source: Clean Energy Pipeline (www.cleanenergypipeline.com)

creating solutions
One of the reasons why smart technologies community of companies we work with
are attractive to venture capital and private When there is and give them the challenge and define
equity funds is because there is still a strong the market opportunity.
need for new solutions 82% of survey
collaboration
respondents disagree with the statement between the This dialogue between city planners and
the private sector is essential. As Carol
that there are few opportunities for venture public, private Connolly, Director of Future City Glasgow, the
capital investment in this sector because
most smart technology (for example, smart
and academic organisation responsible for implementing
ticketing and smart meters) is mature. sectors, you smart city initiatives in Glasgow following
the securing of 24 million grant funding
Technology companies must collaborate develop in January 2013, explains, engagement
with city planners an iterative between the city and the private sector is a
Resolving the funding gap is not the only major part of its smart city initiatives.
solution where
challenge that needs to be overcome
to ensure cities have a wide range of everybody is Our programmes enable us to provide
feedback to the private sector as to what
applicable proven technologies at their contributing we want technology to do and how it
disposal. Using their smart city goals as
a blueprint, city planners should engage
to the can work better, she said. When there
development is collaboration in this way between the
proactively with technology companies to
public, private and the academic sectors,
develop solutions that meet a real need. of new you develop an iterative solution
In the UK, Innovate UK runs a series of technology. where everybody is contributing to the
competitions aimed at addressing this issue. understanding and development of a
For example, it is currently running a 6 new technology. Instead of the private
million competition to encourage companies sector developing in silos, we enable
to develop prototypes that demonstrate how them to develop technology that we can
their solutions can integrate infrastructure use and actually benefits citizens.
and services across cities more easily.
However, smart technology can pose
Richard Miller, Deputy Director, Innovation in
problems for city infrastructure owners
Industry at Innovate UK, explains the benefits
of these competitions. Aside from a lack of funding, two frequently
cited obstacles to the proliferation of smart
We run competitions designed from technology were: the technology would
feedback from cities regarding what
they need to fix their problems, he said.
We turn this feedback into challenges
for business. For example, one of our
competitions asked 30 of the UK cities
involved in the early stages of our
Future Cities Demonstrator competition
what solutions they want to buy that
they cant find in the marketplace. We
were then able to contact the innovative

creating solutions
have a disruptive impact on the business How to incentivise smart

models of the companies most likely to
city investments The speed of
purchase it; and smart technologies might
introduce vulnerabilities to the operations
growth of the
The benefits of smart city initiatives are often
of critical city infrastructure, such as public felt well beyond the individual, building or
smart grid
transport or electricity grids. organisation that has implemented them. For market is
These obstacles are relevant for a variety instance, the installation of building control ultimately
of smart technologies but are most systems not only cuts energy bills, they
associated with smart grid and smart also reduce dirty emissions and, as such, driven by the
meter technology. For example, utilities have a wider, positive environmental impact. speed at which
Likewise, intelligent transport systems not
could be impacted financially if the roll-
only benefit individual users, they also have
utilities are
out of smart meters results in energy
consumers using less energy. In addition, a positive impact on the economy of a city willing to adopt
utilities are unlikely to integrate new smart through reducing congestion. and implement
grid technology into electricity grids until The multiple benefits of many smart initiatives this technology.
it has been extensively tested to ensure should encourage government incentives.
there is no chance it will cause disruption. However, survey data reveals a severe lack
The speed of growth of the smart of government incentives in Europe survey
grid market is ultimately driven by the respondents ranked a lack of government
speed at which utilities are willing to incentives as the second most important
adopt and implement this technology, obstacle to the roll-out of building control
explained Albert Fischer, Managing Director, systems and intelligent transport systems
Yellow&Blue Investment Management. and the third most important obstacle to the
Many utilities oppose the adoption of roll-out of energy storage.
smart meters because current meters So what can governments do to incentivise
are designed for 30 years and only cost investments in smart city initiatives? Our
60 per unit. The old meters are a cash survey data finds broad support for a variety of
cow for utilities and they are reluctant initiatives ranging from tax breaks for individuals
to change them. Even if they decide who adopt smart technologies or for investors
that technology such as smart meters that invest to creating enterprise zones and
makes good business sense, they will innovation hubs for smart technologies. The
usually begin with a small pilot, before provision of direct funding to communities and
rolling the technology out gradually. regions to invest in smart cities received the
Implementation will also be slow most support from survey respondents.
because the impact of a poorly managed
roll-out is significant on the utility and
its customers.

creating solutions
There are already many examples of this What should your government do to incentivise investment in smart
taking place across Europe. For example, in technologies?
January 2013, the Future Cities Demonstrator Provide matching funding to communities/regions that invest in smart cities
competition, managed by Innovate UK, 34% 53% 11%
awarded 24 million to the city of Glasgow to
invest in smart city initiatives. Develop a series of tax breaks to encourage individuals to become early adopters of
smart technologies
While there are numerous examples of 35% 47% 16%
governments incentivising investment through Create a dedicated smart technologies investment fund to invest alongside
providing direct funding themselves, either institutional investors
in the form of a direct grant or a low-cost 37% 41% 19%
loan, there are few examples of governments
Develop a series of tax breaks to encourage corporates to invest in smart
establishing incentive programmes for technologies
the private sector to invest in smart city 30% 46% 21%
infrastructure, similar to, for example, the
feed-in tariffs that most European countries Establish smart technology enterprise zones to create innovation hubs in smart
technologies
have used to encourage renewable energy
28% 47% 22%
generation. A notable exception is in Italy
where a white certificate scheme, also Develop a series of tax breaks to incentivise institutional investors to invest
known as the energy efficiency certificate 24% 49% 25%
(EEC) scheme, was established in 2004. The
certificates are tradable instruments that Strongly agree Agree Disagree Strongly disagree
provide proof of energy savings. The scheme
requires natural gas and electricity distributors
to achieve annual energy efficiency savings. Sindall Investments, notes: There is lots
Companies can either meet their obligations of uncertainty around subsidies in the
by implementing energy efficiency projects UK and if you are putting financing
themselves or by purchasing certificates from together for a project with a 15 to
qualifying projects. 20 year duration you need certainty.
There have been numerous changes in
It is also vital that any government incentives UK legislation in the past few years. If
designed to encourage investment in smart a large biomass plant gets permission
cities are long term. Furthermore, if these and uses a significant amount of the
incentives are altered, the changes must capacity then the volume of subsidies
be clearly communicated to the investor available can impact on later projects.
community well before the changes take You dont get formal sign-off on the
place. It is also important that investors have subsidy until you finish construction/
certainty that smart city projects are able first spark so there is a leap of faith
to access specific subsidies before a final for waste-to-energy facilities because
investment decision is made. As Allister you dont have certainty during
Wood, Head of Infrastructure at Morgan construction.

Case study
The role of Government
in accelerating
automated demand
response in the UK
Demand-side automated demand response (ADR) pays energy users to Engaging citizens is
turn down or switch off energy-consuming equipment at times of high
energy demand, thereby reducing the volume of generation capacity that essential
must be switched on to maintain grid frequency. The development of Survey respondents identified social issues
demand-side ADR thus far and the obstacles to its wider use provide a as a major obstacle to the roll-out of smart
clear example of the role governments can play in promoting smart city cities a lack of consumer demand for
initiatives. solutions and concerns over security/privacy
At the EU level, the EU Energy Efficiency Directive emphasises the use issues were the top two obstacles to the
of demand response, but does not mandate usage. That is pushed at the roll-out of smart meters, while a lack of
national government level. In the UK, a number of initiatives have been consumer demand was the main obstacle to
implemented to accelerate the use of demand response. the more widespread use of building control
systems. These two obstacles are linked. A
Low Carbon Network Fund (LNCF): OFGEM has developed lack of consumer demand will to an extent be
the LNCF, a 500 million fund that provides DNOs with capital to underpinned by privacy concerns. To address
pilot new technology or commercial and operating arrangements to this obstacle, governments and the private
explore how networks can facilitate the take-up of renewable energy sector must work together to educate citizens
and energy efficiency. The programme runs between 2010 and about the benefits of smart technology.
2015.
With respect to smart meters, there is
Phased minimum capacities: In order to participate in demand a significant difference in the level of
response with the National Grid, aggregators must compile at least understanding of the benefits of the
3 MW of capacity. This is quite a challenge given that individual technology across Europe. Almost half of
buildings may be able to provide adjustable load in the region of French and Italian respondents believe
100-500 KW. The National Grid, therefore, has launched a new energy consumers in their country are
service that enables aggregators to build up their capacity in steps. convinced by the benefits of smart
meters. This compares with under 20% of
While these initiatives have accelerated the use of demand response, German respondents and only 22% of UK
much more can be done in the UK. Lack of support by the respondents.
Government is the main reason this market might not fulfil
its potential, explained Scott Petersen, Business Development This is directly correlated to the level
Director Smart Grid Solutions, Europe & North Africa at Honeywell of deployment in each country. Italy is
Building Solutions. We are pushing for the carbon impact to furthest ahead, where state utility Enel has
be taken into account as its not at the moment. The national installed smart meters for over 90% of all
grid selects resources on the basis of economic merit for grid Italian households. However, in Germany,
balancing, so will just take the cheapest option, which is often a cost-benefit analysis for the roll-out of
provided by fossil-fuelled power stations. But these generate smart meters found that the programme is
carbon emissions. We believe that the carbon impact should only economically justifiable for particular
be taken into account and low-carbon resources should be consumers, and will, therefore, not hit the EU
prioritised over dirty demand response resources. target of replacing 80% of existing meters
with smart versions by 2020.

creating solutions
Do you agree that energy consumers

generally understand and are convinced
Stable regulatory
by the benefits of installing smart meters? frameworks are very
Percentage of respondents from each important
location who agree.
Survey respondents also identified
Italy 48% inadequate regulatory and legal
frameworks as a potential challenge to the
France 48%
roll-out of smart city systems. In fact, 16%
48%
Belgium 30% of respondents identified unfit regulatory
frameworks as the main obstacle to the
Netherlands 27%
roll-out of smart meters in Europe, making
Spain 23% it the third most important obstacle behind
a lack of consumer demand and concerns
UK 22% of Italian and over security and privacy. A less-than-
Germany 18% German survey adequate regulatory framework was
respondents deemed the fourth most important obstacle
to the implementation of energy storage
However a lack of consumer demand is not
agree that and the fifth and sixth most important
just underpinned by privacy concerns. In many consumers obstacle to the roll-out of building control
instances it is a direct result of the private understand and systems and intelligent transport systems
sector failing to offer a compelling proposition respectively.
that demonstrates value to the consumer. are convinced
In order for smart city systems to be
There are many parallels with the mobile by the benefits of implemented at scale, it is vital for technology
phone industry, which didnt take off until
telecoms companies created a new business
installing smart developers and organisations purchasing
model that gave consumers a free phone and meters. technology to have clarity on the legal and
regulatory context of their use. Since many
then charged a monthly fee to use it. Similarly
smart city systems involve the collection and
disruptive innovation in business models is
analysis of personal information, regulations
needed to catalyse smart technology.
relating to data privacy are an important part
If technology such as smart meters of the implementation process.
does not provide clear benefits for
At a European level, privacy is protected
the end user, concerns about privacy
through, among other laws, EU Data
and security will rise to the surface,
Protection legislation, which is currently being
explained Rene Savelsberg, CEO of Chrysalix
reformed. The reforms, which are expected
SET. I am certain that the negative
to be agreed during 2015, include a series of
attitudes of citizens towards smart
changes such as stricter consent requirements,
technologies are underpinned by the
significant fines, the obligation to run privacy
fact that people dont understand what
impact assessments and stronger enforcement.
the benefits are, rather than concerns
New onerous cyber-security provisions have
about privacy.
also been proposed for those operating

creating solutions
national infrastructure assets. Cities that How important are EU-based initiatives to the development of smart
install smart technology that processes private cities in your country?
information will need to keep abreast of the European regulation should support the interoperability of technologies and market
new requirements that emerge from these access to maximise efficiencies from smart cities
reforms. 51% 45%
There should be a minimum EU standard for sustainable construction of new and

As a number of smart city systems involve refurbished buildings/infrastructure
the transmission of data, another important 39% 50% 10%
regulatory development at the EU level is the
The funding provided under the European Innovation Partnership on Smart Cities
implementation of the Connected Continent and Communities is too small to make any meaningful impact on the adoption of
package of proposals. The draft regulations, smart technologies in European cities
which are currently going through the 17% 63% 20%
European Parliament, are designed to create The most valuable role the EU can play is to stimulate greater investment in smart
a single European market for electronic technologies and their roll-out in member states through subsidy schemes and
communications, creating fewer barriers guarantees
to entry and more efficient spectrum use. 23% 52% 22% 4%
Presently, the regulatory regime for electronic The European Innovation Partnership on Smart Cities and Communities has raised
communications is fragmented across awareness of the benefits that smart technologies offer
Europe, meaning that smart technology 7% 61% 28% 4%
utilising electronic communications has to European-wide initiatives make very limited impact on the way smart technologies
comply with multiple regulatory regimes. are adopted at the national level
13% 52% 33%
The survey data points to a series of
A collaborative approach within the EU to adopting smart technologies is unrealistic
additional initiatives the EU could implement given the wide economic differences between member states
to accelerate the roll-out of smart cities. Over 10% 36% 45% 9%
95% of respondents believe that regulation
supporting the interoperability of technologies Strongly agree Agree Disagree Strongly disagree
and market access is an important initiative.
Furthermore, the majority (89%) of survey
respondents believe a minimum EU standard
for sustainable construction of new and the challenge is deciding when to
refurbished buildings/infrastructure would invest, he said. There isnt a standard
also further the development of smart cities. European view of what a smart meter
looks like, what data you will get from
It is also important that standards emerge it and how it will help customers reduce
that relate to the actual functionality and energy consumption. There seems to
applications of smart technology. As Mike be a lot of uncertainty around exactly
Lewis, Vice President and General Manager what information utilities are going to
EMEA at Space-Time Insight, explains, a get and what they are required to look
lack of technology standards is currently after from a compliance perspective.
impairing the roll-out of smart meters in Any sensible business manager will not
some European countries. Utilities know invest until they know the details of the
they need to invest in smart meters, standards.

UK
Progress on smart cities planners and technology companies to assist

the private sector in understanding the specific
The UK is home to a large number of smart solutions cities require.
cities. According to a report by the European
Parliament, the UK is one of only three Targets: The UK has set a target to install
European countries that has more than 31 smart meters in every home by the end of
cities with at least one smart initiative, the 2020. The country is a long way behind
others being Italy and France. However, many other European countries the
when measured as a percentage of the programme is only scheduled to begin in
total number of cities, the UK performs earnest towards the end of 2015.
less well less than three-quarters of UK Standards: The British Standards Institution
cities with a population of over 100,000 can (BSI) and the UK Department of Business,
be considered smart, behind a number of Innovation and Skills have established a
countries, including Italy, Denmark, Sweden, programme to develop smart city standards.
Finland and Austria.8
The UK has implemented a number of

To what extent do you agree with the following statements about smart
initiatives designed to accelerate the
cities in the UK?
development of smart cities. These include:
The expansion of renewable energy on the grid is the main driver for much-needed
Funding: The UK Government, through investment in energy storage and smart grids
Innovate UK, has implemented a series of 20% 58% 14% 8%
programmes that provide funding directly to
The UKs Smart Metering Implementation Programme, which aims to roll out
cities for investment in smart initiatives. In 53 million smart meters to all domestic consumers and small non-domestic premises
January 2013, Innovate UK awarded 24 by 2020, is a game changer in the creation of smart cities
million to Glasgow, following a competition 7% 67% 17% 10%
entered into by 30 UK cities, for investment
There is insufficient regulation/government incentive to encourage investment in
in smart initiatives. Innovate UK has also smart grid technologies
launched the Future Cities Catapult, funded 15% 56% 18% 11%
with up to 50 million over five years. The
The roll-out of intelligent transport systems (for example, the connected car,
Catapult will explore ways that public services
autonomous/driverless cars, next-generation smart ticketing, improved urban
can be integrated in a smart way to boost the mobility schemes) is a priority for UK's transport authorities
economy and benefit citizens. 23% 39% 30% 8%
Collaboration: The UK Department of The Low Carbon Network Fund has been critical in facilitating trials of smart grid
technologies
Business, Innovation and Skills has established
7% 45% 38% 10%
the Smart Cities Forum, which aims to identify
and address potential obstacles to the Energy consumers generally understand and are convinced by the benefits of
realisation of smart cities through bringing installing smart meters
together city planners, the private sector and 19% 49% 29%
academia. A series of initiatives run by the
Strongly agree Agree Disagree Strongly disagree
Future Cities Catapult also brings together city
8

UK
Obstacles to smart cities In the UK privatised utility and transport

sectors, implementing smart technology that is
UK survey respondents broadly identify the interoperable across the various private sector
same obstacles to the roll-out of various suppliers is extremely challenging. There is
components of smart cities as their European a strong desire in the UK public sector
counterparts. Social obstacles, including the to use smart ticketing, explained Simon
lack of consumer demand and security and Spooner, Partner, Osborne Clarke. This has
privacy concerns, are the main obstacles to been demonstrated by the success of
the roll-out of smart meters. While this is also the Oyster card in London. However,
regarded as a major obstacle elsewhere in London benefits from having TFL as
Europe, it is a more significant barrier in the a regulated operator, meaning it can
UK. Only 22% of UK survey respondents implement initiatives like Oyster cards
believe UK energy consumers generally by itself. But in many other UK cities
understand and are convinced by the benefits such as Manchester, where a number of
of installing smart meters. The average across different private companies operate bus
Europe is 31%. and rail routes, getting agreement on a
multi-mode and multi-operator smart
While UK survey respondents identified a
ticketing system is much harder.
lack of finance as the greatest obstacle to
the implementation of intelligent transport
systems, they are also the group that believes To what extent do you agree that the roll-out of intelligent transport
the roll-out of intelligent transport systems is a systems is a priority for Government/transport authorities?
priority for its transport authorities. Some 62%
Percentage of respondents from each location
of UK survey respondents believe the roll-out
of intelligent transport systems is a priority UK
for UK transport authorities, compared with a 23% 39%
Europe-wide average of 46%. Netherlands
13% 43%
Another challenge for the UK in creating
smart cities is that many public services Germany
are privatised to a greater extent than 8% 39%
in other European countries. This can Italy
potentially slow the development of smart 27% 20%
cities for two reasons. Firstly, city planners
Belgium
and governments need to convince private 19% 23%
companies of the benefits of investing in
smart initiatives. This may be problematic France
38%
if these initiatives undermine private
companies business models. For example, Spain
many UK utilities have pushed back on the 7% 21%
Governments plan to install smart meters in
every home by 2020. Strongly agree Agree

Germany
With its abundance of renewable energy and To what extent do you agree that the
high levels of recycling, one might expect expansion of renewable energy on the grid is
the main driver for much needed investment
Germany to be ahead of other European
in energy storage and smart grids?
countries in the development of smart
cities. This is not the case. The European Percentage of respondents from each
Parliament places Germany in its third tier location who strongly agree
of countries ranked by their development
Germany 35%
of smart cities, meaning only 25-50% of
German cities with a population of over Netherlands 30%
100,000 have at least one smart initiative.9 Spain 27%
One area where Germany is particularly Italy 21%

behind is smart meters. A cost-benefit
35.7 GW
France 21%
analysis of the merits of rolling out smart
meters in July 2013 found that smart meters UK 20%
are only justifiable for certain consumers.
of solar PV The Government has, therefore, ignored EU
Belgium 20%
capacity was recommendations to install smart meters

for 80% of electricity consumers by 2020.
operational at This decision has undoubtedly influenced
investments 35% of respondents strongly
agree that the expansion of renewable
the end of 2013, our German cohort of survey respondents energy on the grid is the main driver for
compared with only 18% of respondents based in Germany much-needed investment in energy storage
believe that energy consumers generally and smart grids, the highest proportion in our
just over 6 GW at understand and are convinced by the surveyed European countries.
the end of 2008.10 benefits of installing smart meters, compared
with a European average of 31%. As a result One reason why Germany has been slow
almost half of survey respondents located to develop smart cities is the relatively
in Germany (47%) believe the countrys low proportion of its population living in
decision to ignore EU recommendations urban areas. Statistics on the proportion of
relating to smart meters will significantly Germans that live in cities vary considerably
hinder the development of smart cities. due to differences in how cities are defined.
However, Germany is consistently ranked
Smart meters aside, Germany is taking lower than the UK, Italy, Belgium and
steps to improve the reliability of its grid to the Netherlands by the percentage of its
accommodate the increase in renewable population living in urban areas. It, therefore,
energy production during the past five years. might be expected that Germany has
Some 35.7 GW of solar PV capacity was prioritised smart ways of travelling between
operational at the end of 2013, compared cities, such as electric vehicles. However, as
with just over 6 GW at the end of 2008.10 Thomas Funke, Partner at Osborne Clarke,
Survey respondents confirm that the influx of explains, innovation in this area has also
renewable energy on the grid is driving grid been slow to materialise.
9
10
European Photovoltaic Industry Association (June 2014), Global Market Outlook for Photovoltaics 2014-2018

Case study
Hamburg
Located in the north of Germany, Hamburg is pursuing a series of smart initiatives. The most notable are outlined below.
smartPORT: Hamburg port is the primary economic driver in the city. In 2012, the Hamburg Port Authority initiated the
smartPORT project in collaboration with the Department of Urban Development (BSU) and the Department for Economics (BWVI).
smartPORT has two objectives. The first is to improve the logistical efficiency of the port. Amongst its many initiatives, one is to
establish an intermodal port traffic centre that collects, processes and then distributes traffic information to port users, enabling
them to select the fastest mode of transport to transport goods to their final destination.
The second objective is to make the ports power consumption more sustainable by building local renewable energy generation and
making energy-consuming infrastructure more energy efficient. Wind, solar and biomass generation options are being explored.
Cisco smart city initiatives: In April 2014, the city of Hamburg signed a memorandum of understanding with Cisco Systems to
create a series of pilot projects focusing on smart traffic, smart street lighting, infrastructure sensing and remote citizen services.
The German Government recently To what extent do you agree with the following statements about smart
launched an initiative that will allow cities in Germany?
owners of electric vehicles to use The expansion of renewable energy on the grid is the main driver for much-needed
lanes normally reserved for buses investment in energy storage and smart grids
or taxis, he said. This is intended 35% 51% 14%
to incentivise the purchase and use There is insufficient regulation/government incentive to encourage investment in
of electric vehicles, as existing tax smart grid technologies
breaks have shown little effect. 17% 50% 29% 4%
There is also an initiative to fund The roll-out of intelligent transport systems (for example, the connected car,
research and to enhance the autonomous/driverless cars, next-generation smart ticketing, improved urban
availability of electric vehicle charging mobility schemes) is a priority for the federal government
infrastructure, but more could be 8% 39% 49% 4%
done. So far the initiatives the Germanys decision to not follow EU recommendations that member countries install
German Government has undertaken smart meters for 80% of consumers by 2022 will significantly hinder the development
of smart cities
are not as far reaching as those that
15% 32% 32% 21%
exist in other European countries
such as the Netherlands, where Declining power prices are reducing the rationale behind investing in the
energy-related components of smart cities
electric vehicles or plug-in hybrids
4% 30% 41% 24%
are heavily subsidised. As consumer
interest is growing, subsidies in the Energy consumers generally understand and are convinced by the benefits of
installing smart meters
form of cash-back rebates or more
16% 47% 35%
substantial tax breaks would speed
up developments. Strongly agree Agree Disagree Strongly disagree

Spain
Spain is home to many smart cities. and Austrian cities with at least one smart
According to research undertaken by city initiative.11
the European Parliament, more than 30
Spanish cities with a population in excess The survey data suggests a lack of
of 100,000 have at least one smart city Government incentives is responsible for Spain
initiative, making it one of the top three lagging behind other European countries
countries in Europe measured by the Spain contains the largest proportion of
number of smart city initiatives, alongside survey respondents (79%) that believe there
Italy and the UK. However, Spain performs are insufficient regulation and Government
less well when measuring the number of incentives to encourage investment in smart grid
smart city initiatives as a percentage of its technologies. Furthermore, Spain contains the
total number of cities 51-75% of Spanish lowest percentage of survey respondents (28%)
cities with a population over 100,000 have that believe the roll-out of intelligent transport
at least one smart city initiative, lower than systems is a priority for transport authorities.
the percentage of Swedish, Danish, Italian Despite the lack of Government
incentives, many Spanish municipalities
are collaborating to promote and share
To what extent do you agree that there is insufficient regulation/ best practice on the development of smart
government incentive to encourage investment in smart grid city initiatives. For example, a number of
technologies? municipalities established the Spanish
Percentage of respondents from each location Network for Smart Cities (RECI) in 2012.
The organisation, which now counts 54
Spain municipalities among its members, not only
34% 45% shares experiences of implementing smart
Belgium initiatives but also lobbies Government on
26% 52% behalf of municipalities wanting to create
smart cities.
Italy
34% 41% One area the Spanish Government has
Netherlands prioritised is the use of electric vehicles.
17% 55% The Governments Plan PIVE provides a
discount to customers wishing to replace
UK
cars with electric vehicles. The latest
15% 56%
version of the initiative, Plan PIVE 6, which
France was approved in June 2014, provides
11% 56%
a 2,000 grant when scrapping a
Germany 10-year-old car and replacing it with an
17% 50% electric, hybrid, or less contaminant car.
The Government has set aside a budget of
Strongly agree Agree 175 million for this initiative.
11

Spain
Promoting the use of electric To what extent do you agree with the following statements about smart
vehicles is a high priority for the cities in Spain?
Spanish Government and there are The expansion of renewable energy on the grid is the main driver for much-needed
some interesting initiatives, such as investment in energy storage and smart grids
PIVE or MOVELE, to subsidise the 27% 60% 13%
purchase of electric cars, combined There is insufficient regulation/government incentive to encourage investment in
with municipal strategies in order smart grid technologies
to create adequate infrastructures 34% 45% 14% 7%
for recharging points, explained Luis The roll-out of intelligent transport systems (for example, the connected car,
Castro, Partner at Osborne Clarke. But autonomous/driverless cars, next-generation smart ticketing, improved urban
these projects have not been that mobility schemes) is a priority for Belgium's transport authorities
successful thus far. It will take time 7% 21% 41% 31%
for consumers to get used to these Energy consumers generally understand and are convinced by the benefits of
vehicles. The Government is doing installing smart meters
its best, but the subsidy for electric 20% 47% 30%
vehicles is probably not enough at
the moment. Strongly agree Agree Disagree Strongly disagree
Case study
Santander
In 2010 Santander was selected to become Europes first testing ground for the mass
deployment of smart sensors. In the last four years, over 12,000 sensors have been deployed
throughout the city, measuring a variety of factors, including air pollution, traffic levels, the
number of parking spaces and much more. This information is fed in real time into central
servers that then provide actionable information to city officials.
For example, local authorities can decide how frequently to send out waste-collection vehicles
based on sensors in disposal units that can identify how full the units are. The data collected by
sensors is also provided to the public so that, for example, the private sector can create apps
that enable citizens to make good use of the data.
Installation of the sensors cost over 8 million. The majority of the investment was financed
by a grant from the EU.

Italy
To what extent do you agree with the following statements about smart significantly ahead of the EU requirement
cities in Italy? for Member States to install smart meters in
80% of households. There is mixed opinion
There is insufficient regulation/government incentive to encourage investment in
smart grid technologies on whether this has actually resulted in any
34% 41% 17% 7% behavioural changes only 43% believe
the smart meter roll-out has resulted in
The expansion of renewable energy on the grid is the main driver for much-needed
investment in energy storage and smart grids behavioural changes.
21% 52% 28%
Italy has also made good progress in
Energy consumers generally understand and are convinced by the benefits of facilitating the adoption of energy efficiency
systems. It has offered to private-sector
45% 31% 21%
households tax incentives and energy
The roll-out of intelligent transport systems (for example, the connected car, efficiency certificates (also known as white
autonomous/driverless cars, next-generation smart ticketing, improved urban
certificates) since 2004. A new legislative
mobility schemes) is a priority for Italy's transport authorities
27% 20% 33% 20%
decree in 2014 enacting the European
Directive 2012/27/UE on energy efficiency
Italys roll-out of electric smart meters to over 90% of points of delivery (as of 2014) requires public administrations to increase
has resulted in significant behavioural changes
the energy efficiency of their buildings.
11% 32% 46% 11%
The Public Private Partnership financing schemes available in Italy (for example, Piero Vigan, Partner at Osborne Clarke,
project financing, project bonds) are sufficient to develop and finance smart cities explains the impact of these initiatives on
projects
the Italian energy efficiency market. The
7% 63% 30%
tax incentives and white certificates
Strongly agree Agree Disagree Strongly disagree launched a decade ago have had a
big impact and have resulted in Italy
becoming one of the best energy
efficiency markets in Europe, he said.
Italy is one of the most advanced European
This compares favourably to other
countries in terms of smart city initiatives. A
European countries, where they either
report by the European Parliament placed
do not have any incentives for energy
Italy in its top tier of countries ranked by the
efficiency mechanisms, or, if they do,
number of smart city initiatives - over 75%
they are not that significant. There are
of cities in Italy with a population of over
some major elements in the recent
100,000 have at least one smart initiative.12
decree that could play an important
Italy is particularly advanced in its deployment role in creating an energy efficiency
of smart meters. State utility Enel has market. By way of example, for the very
installed smart meters for more than 34 first time the public sector is obliged
million customers, accounting for more to increase the energy efficiency of its
than 90% of Italian households. This is buildings.
12

Belgium
To date, the development of smart cities in Belgium is very ambitious but today
Belgium has been moderate. Research by the doesnt contain any really good
European Parliament places Belgium in its examples of smart cities, commented
second tier of countries ranked by smart city Stefan Deswert, Partner, Osborne Clarke.
initiatives, meaning that 51-75% of its cities This is because it is a very political
with a population over 100,000 have at least issue. Belgium is divided into a lot of
one smart city initiative.13 As the most densely sub-governmental bodies, which makes
populated country in Europe, with more than decision-making very complicated.
98% of its population living in cities, it ought This is the main reason why this is
to rank higher.14 taking a long time. That said, cities
such as Ghent, Bruges and Kortrijk are
Survey data provides some explanation as beginning to make progress and have at
to why cities have been slow to embrace least developed a smart city philosophy.
smart technologies some 78% of Belgian They have been successful as they have
survey respondents believe there are managed to reach a decision at the local
insufficient regulation/government incentives level and have formed partnerships with
to encourage investment in smart grid the private sector to enact them.
technologies.
Change is now afoot. To kick-start

development of smart cities, state-owned To what extent do you agree with the following statements about smart
cities in Begium?
banking and insurance group Belfius Bank
launched in July 2014 a 400 million smart The expansion of renewable energy on the grid is the main driver for much-needed
city financing programme, Smart Cities & investment in energy storage and smart grids
Sustainable Development, in collaboration 20% 72% 4% 4%
with the European Investment Bank (EIB). There is insufficient regulation/government incentive to encourage investment in
The programme, capitalised with 200 smart grid technologies
million from Belfius Bank and 200 million 26% 52% 19% 4%
from the EIB, will provide preferential rate
The 400 million smart and sustainable finance scheme launched by the EIB and
loans to municipalities, utilities, or any other Belfius Bank will be vital in creating smart cities in Belgium
organisation providing services to local 8% 50% 33% 8%
authorities, for the implementation of mobility,
urban development and energy efficiency autonomous/driverless cars, next-generation smart ticketing, improved urban
initiatives in Belgium that can be deemed mobility schemes) is a priority for Belgium's transport authorities
smart and sustainable. 19% 23% 38% 19%
Energy consumers generally understand and are convinced by the benefits of

Belgium survey respondents are optimistic installing smart meters
that this new financing initiative will catalyse 30% 50% 20%
the growth of smart cities 58% believe the
scheme will be vital in creating smart cities in
Belgium.
13
14

The Netherlands
The Netherlands is making progress in of businesses, public authorities and research

implementing smart cities. Research by the institutions that work together to make the
European Parliament places the country Amsterdam Metropolitan Area a sustainable
in its second tier of European countries and more environmentally friendly living
that have successfully implemented smart environment. When established, the primary
cities, meaning 51-75% of its cities with a focus of ASC was to develop, test and then
population over 100,000 have at least one introduce energy smart technologies and
smart city initiative.15 initiatives capable of contributing to the citys
target to reduce CO2 emissions by 40% by
The survey data indicates that the Netherlands 2025 compared with 1990 levels. Since then,
outranks other European countries in terms the ASC has evolved to promote a range of
of its commitment to integrate intelligent smart initiatives, including smart mobility, smart
transport systems 56% of Dutch survey living and smart society. Since its inception,
respondents indicated that the roll-out of the ASC has grown to over a hundred partners
intelligent transport systems is a priority for involved in more than fifty projects.
its transport authorities, compared with a
European average of 46%.
In contrast, the Netherlands ranks slightly To what extent do you agree with the following statements about smart
cities in the Netherlands?
below the rest of Europe in terms of its
acceptance of smart meters 27% of survey The expansion of renewable energy on the grid is the main driver for much-needed
participants based in the Netherlands believe investment in energy storage and smart grids
that energy consumers generally understand 30% 50% 17%
and are convinced by the benefits of installing There is insufficient regulation/government incentive to encourage investment in
smart meters, compared with a Europe-wide smart grid technologies
average of 31%. 17% 55% 17% 10%
In April 2014, the Netherlands announced The roll-out of intelligent transport systems (for example, the connected car,
plans to install 15 million smart gas and autonomous/driverless cars, next-generation smart ticketing, improved urban
mobility schemes) is a priority for the Netherlands' transport authorities
electricity meters by 2020 as part of its
13% 43% 27% 17%
national roll-out programme. This followed
a pilot of 600,000 meters that has been The Netherlands will achieve its target to install 15 million smart gas and electricity
running since 2012. However, the majority meters (covering all households and small businesses) by 2020.
(55%) of survey respondents do not believe 4% 41% 44% 11%
this target will be met. Energy consumers generally understand and are convinced by the benefits of
Amsterdam, the countrys capital, is furthest 27% 53% 20%
ahead in rolling out smart city initiatives. In
2009 the Amsterdam Smart City (ASC)
programme was established. It is a partnership
15

France
France has been very slow to implement it comes to intelligent transport systems
smart city initiatives. According to research only 38% of French survey respondents
conducted by the European Parliament, believe that the roll-out of intelligent transport
under half of French cities with a population systems is a priority for Frances transport
over 100,000 have at least one smart authorities, the second lowest proportion
city initiative, putting it behind many other among all surveyed countries.
European countries, including the UK, Spain,
Italy, Austria and the Nordic countries.16 One French city that is implementing smart
initiatives is Lyon. The citys Greater Lyon
The only area where France does seem to Smart City plan focuses on identifying new
be getting its act together is smart meters. technological, urban, social and environmental
lectricit Rseau Distribution France, which solutions to improve city life. At the beginning
operates 95% of Frances electricity distribution of 2014, around 40 smart city projects were
network, plans to install 3 million smart meters being rolled out or planned in Greater Lyon.
during 2015 and 2016 and a total of 35 million Each project falls into one of four primary
smart meters, representing a 95% market themes new mobilities, digital services,
penetration, by the end of 2020. The roll-out smart grids and innovation & initiatives.
will cost an estimated 5 billion. Some 300,000
smart meters have already been installed in pilot
To what extent do you agree with the following statements about smart
projects in Lyon and Tours. cities in France?
However, there remains uncertainty as to The expansion of renewable energy on the grid is the main driver for much-needed
whether this target will be achieved. In August investment in energy storage and smart grids
2014 Frances energy regulator, Commission 21% 48% 31%
de Rgulation de lnergie (CRE), announced There is insufficient regulation/government incentive to encourage investment in
that the plan is too ambitious and should be smart grid technologies
scaled back to a penetration rate of 90% by 11% 56% 30% 4%
the end of 2020. Survey respondents are
Energy consumers generally understand and are convinced by the benefits of
equally sceptical 64% of French survey installing smart meters
respondents do not believe the country will hit 45% 41% 10%
its target of installing 35 million smart meters
by the end of 2020. autonomous/driverless cars, next-generation smart ticketing, improved urban
mobility schemes) is a priority for France's transport authorities
Despite the early stage of the roll-out, 38% 52% 10%
survey respondents believe French energy
France will achieve its target to install 35 million smart meters (95% penetration rate)
consumers understand and are convinced by 2020
by the benefits of smart meters (48% of 4% 32% 52% 12%
respondents). This is more than in the other
European countries we surveyed aside from Strongly agree Agree Disagree Strongly disagree
Italy. In contrast, France fares less well when
16

Conclusion
Where next for smart cities in Europe?
Our survey data highlights the challenges recipient, be that a building owner installing
to creating smarter cities. Without doubt, energy efficiency equipment, a utility rolling out
the most significant challenge is a lack smart grid technology or a transport authority
of funding. After this, survey respondents implementing intelligent transport systems.
identified a lack of government incentives,
unfit regulatory frameworks, a lack of Due to the multiple stakeholders involved,
commercially viable technology and privacy new funding models depend entirely on
concerns as major obstacles. collaboration between banks, investors,
regulators and local authorities.
So how can these obstacles be overcome?
Different strategies are required for different Collaboration is also essential in developing
Simon Beswick the right technologies. That is why many cities
CEO
challenges. However, the survey data and
interviews conducted for this research implementing smart initiatives have prioritised
Osborne Clarke International
highlight one theme that is common to solving engagement with technology companies to
simon.beswick@osborneclarke.com
all these challenges collaboration. ensure that the right solutions are developed.
Take the primary challenge of funding. The As I said in the introduction, we see this
survey data identifies that the most effective report as the beginning of a new era in the
funding structure will involve a combination development of smart cities. Were going to
of public- and private-sector funding. Yet work tirelessly to bring together the parties
survey respondents believe that the public who are going to make our cities smarter.
sector alone will be the most active investor Were going to do that in both face to face
in smart city initiatives during the next three and online discussions with the key decision
years. A new funding structure and business makers across Europe. Our intention is to use
models that create an adequate risk-reward our collective clout and nous to overcome
proposition for private investors and public the challenges that are hindering smart
authorities is needed. Any new funding cities development, be they intellectual, legal,
structure also needs to work for the funding political, or economic.
For more on smart cities and how OC is involved in developing smart cities,
please visit ocsmartcities.com.

These materials are written and provided for general information purposes only. They are not intended and should not be used as a substitute for taking legal
advice. Specific legal advice should be taken before acting on any of the topics covered. Osborne Clarke 2015.
Osborne Clarke is a brand under which several national firms operate. Full details here: osborneclarke.com/definitions
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01.15 Smart Cities in Europe

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Smart cities in Europe

ii | Smart cities in Europe

About the research..................................................................................................................2

Enabling smart cities: Understanding the obstacles and creating solutions................... 10

Conclusion: Where next for smart cities in Europe?............................................................34

Smart cities in Europe | 1

Respondent breakdown by employer Respondent breakdown by country

Equity investor 10%

2 | Smart cities in Europe

Smart cities in Europe | 3

Cities must smarten up Financing is the greatest

4 | Smart cities in Europe

Bringing smart frameworks as the third and fourth most

Smart cities in Europe | 5

The reality is that smart cities encompass all

6 | Smart cities in Europe

In considering these four components

Smart cities in Europe | 7

8 | Smart cities in Europe

Intelligent transport systems

Although a large number of successful smart Finance the no.1 issue

10 | Smart cities in Europe

Lack of incentives to encourage investment

Regulatory framework not fit for purpose

Lack of proven/adequate technology

The lack of Creates security/privacy issues

roll-out of Lack of conversation and agreement between local government departments

transport Building control systems

systems. Lack of technology standards

Smart cities in Europe | 11

The predicted reliance on government Finance organisations and companies

12 | Smart cities in Europe

5654322 5654322 5654322

Smart cities in Europe | 13

Agree However, as David Ferris, Partner at

14 | Smart cities in Europe

One of the current problems with the

Despite the challenges, this structure is

Smart cities in Europe | 15

16 | Smart cities in Europe

Smart technology Where is investment in smart technology companies most likely to

Smart cities in Europe | 17

18 | Smart cities in Europe

have a disruptive impact on the business How to incentivise smart

Smart cities in Europe | 19

20 | Smart cities in Europe

Smart cities in Europe | 21

Do you agree that energy consumers

22 | Smart cities in Europe

There should be a minimum EU standard for sustainable construction of new and

to entry and more efficient spectrum use. 23% 52% 22% 4%

Europe, meaning that smart technology 7% 61% 28% 4%

Smart cities in Europe | 23

Progress on smart cities planners and technology companies to assist

The UK has implemented a number of

24 | Smart cities in Europe

Obstacles to smart cities In the UK privatised utility and transport

Smart cities in Europe | 25

One area where Germany is particularly Italy 21%

capacity was recommendations to install smart meters

26 | Smart cities in Europe

Smart cities in Europe | 27

28 | Smart cities in Europe

Smart cities in Europe | 29