Demand-side management must become a significant element of the European energy market if the EU’s ambition to build a low-carbon economy is to be realized.  The latest survey of European smart grid projects by the European Commission’s Joint Research Centre (JRC) points out the importance of this requirement.  Smart Grid Projects in Europe: Lessons Learned and Current Developments (2012 update), a follow-up to a similar study carried out in 2011, notes that a majority of the 281 projects covered focus on “distributed ICT architectures for coordinating distributed resources and providing demand and supply flexibility.”

One of the latest projects to join the roster of demand-side management pilots is the Danish city of Kalundborg.  The fact that Denmark already obtains 30% of its electricity from wind power – and targets 50% by 2020 – is making such projects an increasingly urgent requirement for the country.

Symbiotic System

Kalundborg has a population of around 16,000 within a local kommune (or municipality) of the same name extending to 50,000 people.  Its relatively small size belies the fact that it is the second-largest industrial region in Denmark after Copenhagen.  It is also notable for its long established cross-industry program, Kalundborg Symbiosis.  This program has evolved over several decades as an integrated system for waste recycling within the local industrial system.  Residual products from one industry, such as steam, dust, gases, heat, slurry, or any other waste products, are physically exchanged between enterprises, thereby reducing energy consumption, production costs, and environmental damage.

Smart City Kalundborg is a 3-year smart grid pilot with a budget of $18 million.  Launched in November 2012, the project is led by Danish utility SEAS-NVE, Dansk Energi (Danish Energy Association), Spirae, and the municipality of Kalundborg.  Other participants in the project include ABB, CleanCharge, Clever, Danfoss, Gaia Solar, DONG Energy, Gridmanager, and Schneider Electric.  Smart City Kalundborg will look at the integration of energy management across power, water, heating, transport, and building systems.  This entire system will be based on an open, intelligent platform called the Energy Services Hub.  The Hub will enable diverse participants to make specific energy resources available to the system via a publish-and-subscribe model.  An individual enterprise, water utility, or demand aggregator, for example, could use the platform to offer a specified demand response capacity to grid operators looking to manage fluctuations in power supply or reduce the need for network reinforcement.

The technical and market challenges to delivering such a system at a city scale are significant, of course.  However, the biggest question may be who is in the best position to operate such an Energy Services Hub.  One solution would be a joint venture between a municipality, one or more utilities, and a platform operator, but other models are possible.

Smart City Kalundborg is an innovative approach to deepening the connection between smart grids and smart cities.  While Kalundborg has much in common with other market-focused demand management projects in Europe, it differs in its attempt to include a wider range of city operations, including water management, transportation, and district heating.  Kalundborg Symbiosis has provided a synergistic network for the industrial system; Smart City Kalundborg project could provide a similar network for the local energy system.

As cities get smarter to cope with the challenges of ever-increasing urbanization, transportation is an area of primary focus.  If people and goods cannot move around freely, the city grinds to a halt.  Heavy traffic powered by internal combustion engines also generates a lot of pollution.  Los Angeles has been battling with smog since 1943.  The rapid economic growth in China has resulted in serious, and seemingly insoluble, air pollution problems.

Smart transportation solutions can keep the traffic moving and help to reduce the number of vehicles on the roads, but a shift to electric vehicles (EVs) would at least address air pollution issues if not those of traffic congestion.  The problem is that the component technology (primarily battery packs) is too expensive and the driving range falls short of what people are used to.  While plug-in electric vehicle (PEV) sales are actually higher than hybrids were at a similar development stage, they are not taking off in the volumes necessary to make a difference in rapidly growing cities.

One option is the introduction of electric car sharing systems, such as the Autolib program in Paris.  Another example is Daimler, which introduced its all-electric car sharing program through its subsidiary Car2Go in Amsterdam and San Diego in November 2011.  Autolib uses specially designed EVs from Bollore, while the Daimler program uses an electric drive version of the smart fortwo.  Ford announced in March 2013 that it will pilot a carsharing service called FORD2GO through its dealer network in Germany, although the system will initially offer conventional vehicles.   BMW’s DriveNow carsharing service was launched in San Francisco in September 2012.  Toyota is planning an electric car sharing service in Grenoble starting in 2014.  Fleet operations offer a good way for OEMs to learn about the operating and maintenance costs of new technology.

Lighter, Slower, Better

There is another reason for cities to encourage EV ownership and use, and that is to use the vehicle batteries as temporary energy storage.  This could be as part of a smart grid deployment or a microgrid – for example, in a business park or a housing development project.  If vehicle owners all plug in when they get home and specify when they next need their cars, a smart grid can charge when overall electricity demand is low and potentially use some of the stored energy for load balancing on the grid if required.  This is particularly useful if energy is being generated from renewable sources.

Another idea is to develop a city car that is significantly smaller and lighter than a conventional vehicle.  Affordable EVs limited to city use could be a radical option for future transport needs.  The great advantage of this is that the car could be much lighter than existing vehicles, which are designed to carry up to five occupants at high speed and protect them from harm in crash situations.  Lighter, simpler cars can get acceptable range from smaller batteries.  Even more flexibility can be offered if wireless and/or fast charging becomes widely available.

The major OEMs have shown such concept vehicles at various motor shows in recent years.  Examples include Hyundai, Toyota, and GM, as well as new companies such as Edison2 with its Very Light Car.

The major drawback is that city cars don’t meet all the existing road safety standards.  For them to be practical, cities might have to designate areas restricted to these light city EVs, and national certification organizations would have to develop new standards.  The vehicle may be prohibited from freeways and restricted to travel on urban surface streets.  Light, cheap, and electric could well be the transportation solution for smart cities of the future.

The correlation between smart cities and smart grids is strong.  Around one-third of the smart city projects that Pike Research is currently tracking in North America and Europe are primarily focused on smart grids or other energy innovations. Almost half of smart city strategies include energy-focused projects.

The huge investment being made in smart meters on both continents will provide cities with a platform for energy efficiency improvements, new customer services, and network optimization. Cities also provide important pilot environments for a range of smart grid innovations, including the integration of distributed renewable energy, support for EV charging, and the introduction of demand management programs.  Both city planners and utilities need to take a holistic view of these diverse developments.

In Europe, there are several long-standing smart grid/ smart city projects including the InovCity project in Évora, Portugal and Malaga Smartcity in Spain.  One of the United Kingdom’s most ambitious smart grid pilots, Low Carbon London, is a £30 million ($48 million) smart grid and energy efficiency project led by the local distribution operator, UK Power Networks.  Although primarily a pilot for smart grid technologies, the project has embraced a wide range of both technology and community-focused energy management issues that are closely aligned with smart city requirements. Similar developments can be seen in The Netherlands, France, Germany and most recently Italy.

Boulder’s ill-fated SmartGridCity project cast a shadow over North American smart city projects, but other cities have picked up the baton.  Smart City San Diego is building on a series of energy efficiency and smart grid initiatives promoted by local utility SDG&E, the San Diego Cleantech Cluster, and the city council. The Solar-to-EV Project at the San Diego Zoo, for example, has been given center stage in an iconic city landmark.

Going Citywide

Smart grid investments provide an intelligent energy infrastructure that links together different elements of city operations.  Conversely, smart city initiatives can help build consumer awareness of energy efficiency initiatives.  From the utilities’ perspective, tying smart meter programs into a broader smart city project enables a closer engagement with communities, individual consumers, and businesses.

The biggest challenge is to extend these pilots into citywide deployments.  This is where the unified thinking shown in pilots can start to fall apart.  Large-scale programs must be tied in to utilities’ deployment plans, which in turn are often determined by industry regulators and national government policies, making city concerns a secondary consideration.  There is more chance of maximizing the benefits of countrywide smart meter deployments in Europe, for example, if they can be tied to local energy initiatives.  Only by working together can city officials and utilities create fuller consumer engagement and ensure that there is adequate energy infrastructure for the needs of a smart city.

At Smart Utilities Scandinavia in April, I will chair a series of presentations and discussions on how Scandinavian cities and utilities are driving innovation in energy distribution and energy efficiency.  The discussion will center how Scandinavian cities, leaders in many areas of smart city and smart grid development, are building on their investments, how they are addressing the challenges of integration, and what other cities and countries can learn from their experience.

During Pike Research’s recent webinar, The Year Ahead in Cleantech, the question was raised as to whether smart cities represent a market in the traditional sense.  It’s a common topic of discussion among those involved in smart cities. I believe we need to look at this question from three angles.

1. Is it a market that has real customers with real needs to be addressed?

It became clear in 2012 that the answer to this is yes.  City leaders all over the world have embraced the smart city concept with enthusiasm, heralding innovative projects and laying out a vision for how cities can use technology to meet sustainability goals, boost local economies, and improve services.  While these leaders may not care whether that makes it a “market” or not, it is their commitment to changing how cities operate that ultimately defines the viability of the smart city concept and moves it beyond vendor hype.  Projects like the City Protocol and other collaborations show that cities are starting to play a more active role in defining their technology requirements.

2. Is it a market with well defined products and solutions competing for business?

The answer here is more complicated because of the vast diversity of technologies and solutions that can help cities address their challenges.  We need to see the smart city technology market as a complex confluence of several existing markets as well as a space for the emergence, testing, and implementation of new cross-functional technologies and solutions that are smart city specific.  The majority of smart city projects will continue to be rooted in existing operational functions or industry sectors and will act as a market accelerator for established products and services – for smart metering, for example, or for traffic management.  The smart city movement is also creating opportunities for new technologies in areas such as smart street lighting and smart parking, which offer innovative approaches to core city operations.

Integrated smart city platforms or operating centers bring all these systems together in a single system.  IBM led the way in this part of the market with the launch of the IBM Intelligent Operations Center (IOC) for Smarter Cities in 2011. In 2012, Schneider Electric launched its Integrated City Management Platform addressing smart city integration issues from an infrastructure perspective.  Indra, the Spanish technology and services company, has now launched its Urban Interoperability Platform (UOIP), based on traffic management systems it has developed for cities such as Medellin in Columbia.  We expect to see more suppliers producing smart city platforms in 2013, as they look to provide an integration framework for their diverse city solutions.

3. Can the smart city market be sized and forecast?

Needless to say my answer to this is also yes.  We have recently updated our own forecasts for the market in our new Smart Cities report.  The increasing commitment to smart city projects that we have seen from city leaders around the world leads us to be even more positive about this market.  We now expect the market to be worth over $20 billion annually by 2020 (a 25% increase on our forecast made in early 2011) and to represent a cumulative spend of over $117 billion between 2012 and 2020.

We have looked closely at the constituent elements of the smart city market and, in particular, at how smart city opportunities relate to our other market assessments in areas such as smart meter adoption, electric vehicle charging, smart street lighting, and building energy efficiency, for example.

We also take into consideration macro trends in population, economic growth, and infrastructure investment to provide an estimate of the addressable market for each of these sectors as they relate to urban development.  The third dimension to our forecast involves the horizontal technology markets that span industries and new solutions – such as smart city platforms – and that are addressing the integration requirements of the smart city.  Together these three perspectives provide a multidimensional view that is essential to understanding the complexity of the smart city market.