Navigant Research Blog

New Opportunities in the Urban Energy Cloud

— January 2, 2018

The importance of cities to meeting global climate targets is undisputed. Since the COP21 Paris Agreement, more and more cities are joining early leaders like Copenhagen and Stockholm in pledging to become carbon neutral cities. Boston and London, for example, have both recently announced the goal of becoming zero carbon cities by 2050. To achieve such ambitious goals, cities will need to have implemented major changes to their energy systems by 2030. And given the speed of urban planning processes and infrastructure programs, cities and their partners need to instigate many of these projects within the next 3-5 years.

This transformation will touch every aspect of city services and infrastructure, including energy generation and distribution, heating and cooling systems, building energy efficiency, transportation, water and waste management, and the efficiency of city services such as street lighting. At the same time, city operations are being transformed by digital technologies such as the Internet of Things (IoT), smart buildings, artificial intelligence, robotics, and automated vehicles.

A new Navigant white paper, Navigating the Urban Energy Transformation, looks at the critical elements of the emerging city energy landscape and the intersection with the radical changes that Navigant characterizes as the Energy Cloud. As the City of Madison is showing, the transformation of the energy sector provides the bedrock for the creation of the low carbon cities of the future. This convergence of urban innovation and the energy transformation makes smart cities one of the key combinatorial platforms for the Energy Cloud.

The opportunities this creates for utilities and other energy sector plays is particularly evident in the building and transport sectors. A zero carbon city will need to address the role of fossil fuels in space heating and in transportation. Improvements in energy efficiency and the shift to renewable resources are essential steps but, more profoundly, the much closer connection between buildings and transportation and the energy grid will lay the foundation for a new Urban Energy Cloud:

  • Building in the Energy Cloud: The extension of building systems from standalone applications focused on the operation of a single building to hubs within a wider network of energy and environmental monitoring systems will be one of the most dramatic changes in the technical infrastructure of the city. Navigant Research estimates that only 0.5% of the commercial building stock globally is actively participating in the energy system today, but by 2026, more than 9% will be involved. This development will create new roles and opportunities for all players in the sector, including utilities.
  • The age of low carbon mobility: The decarbonization of urban transportation fleets is also offering many opportunities for utilities. EVs will be the single largest addition of energy demand to the power grid in many nations of the developed world. By 2020, more than 4,000 GWh of electricity will be consumed by plug-in EVs annually in the US alone. New services are already combining EVs with stationary storage and other renewable energy offerings to optimize regional supply and demand. The smart charging of swarms of managed EVs will enable greater concentrations of rooftop solar, as charging will be staggered outside of peak times and will be matched to distributed generation.

The city of 2030 will need to manage a much more complex set of interdependencies between diverse aspects of city operations, infrastructure, and platforms. This requires new networks for collaboration between cities, utilities, and other energy sector players, as well as transportation providers, building owners, telecommunication companies, and technology suppliers. Navigant Research estimates that this will create a market worth more than $1.5 trillion over the next decade for smart services across urban energy, buildings, mobility, and other city operations.

 

In an Age of Digital Disruption, Cities and Utilities Must Work Closer

— December 19, 2017

Energy transformation will force the industry to reassess existing value propositions and identify new revenue streams. Until recently, this value lay in single technologies—such as smart meters or solar PV. However, the industry is recognizing value in the convergence of technologies that have historically been treated separately. These technologies might not currently sit within a utilities’ existing area of influence. The potential convergence of EVs, automated driving, smart transportation networks, charging infrastructure, metering, and billing could create huge opportunities for utilities. The industry should keep an eye on disruption in other industries, particularly transportation and smart cities.

Utilities Must Identify Where Value Will Be Created

Kodak is an often cited example of how companies can fail in periods of industry disruption. Kodak developed the first digital camera and owned many patents related to digital photography. Yet, it failed to recognize where the future of digital photography value lay. It believed that digital photos would still be printed on Kodak paper and did not consider a future where users would share digital images online.

There are many lessons that utilities can learn from Kodak, primarily that nothing within business models can be taken for granted. No part of the value chain is immune from the risk of future irrelevance. Every company must consider where the future value will lie in the energy transition. For many, this will focus on helping customers reduce their power consumption, instead of supplying more power. ENGIE UK and the Netherland’s Eneco have both stated their intentions to shift to this service-based approach. The industry has also recognized the growth opportunity in supplying power to EVs and the associated vehicle-to-grid services.

There Is Significantly More Value for Utilities beyond EV Recharging Infrastructure

However, I would posit that utilities have not yet recognized the potential value that lies beyond EV charging infrastructure, supply, and grid services. The automotive industry is undergoing a period of disruption arguably greater than what utilities are experiencing. As city leaders are increasingly concerned about pollution and congestion, cities such as Paris, Athens, Madrid, and Mexico City have announced bans on the most polluting diesel vehicles by 2025. The UK, France, and China have announced bans on the sale of all light duty internal combustion engine vehicles in the next 20 years.

While EVs will play a large part in the shift away from petrol and diesel and offer an opportunity to utilities, there is significant value to be gained by the most ambitious utility. Decarbonization is just one part of automotive disruption, and we are starting to see a shift in trends of car ownership. Increasing numbers of urban residents are turning their backs on car ownership. Singapore has legislated that there will be no net increase in car ownership after 2020. Auto manufacturers are investing millions in automated vehicles, which could hugely disrupt ownership models and, consequently, the taxi and car hire industries.

Utilities Must Work Closer with City Leaders

City leaders—keen to improve air quality and reduce traffic congestion—could be the primary driving force behind a shift to shared ownership and automated models. However, they will need partners to deliver the sophistication of smart transportation services. Utilities have an opportunity to provide the recharging infrastructure for EVs, so it is not inconceivable that they can manage additional infrastructure, such as the metering and billing of automated vehicle use, predictive maintenance of vehicle fleets, fleet asset management services, and more.

Over the past decade, I have witnessed (at least some) utilities’ reluctance to cooperate with smart city programs. However, the concomitant digitization and disruption of electricity and transport create a strong argument for cities and utilities to work closer for their mutual benefit and the benefit of citizens. Navigant Research recently published a list of recommendations for utilities to work closer with city leaders.

 

Telcos Aggressively Expanding Smart City Services

— December 7, 2017

Among the essential building blocks for the smart cities market are communication networks that connect the sensors, controllers, cameras, and other hardware infrastructure capturing valuable data from the city environment. The need for urban connectivity is creating new opportunities for the telcos responsible for providing public wired or wireless communication services to government, consumers, and businesses. Telcos are increasingly making strategic acquisitions and extending their footprint into solutions and services for smart cities and Internet of Thing (IoT) application areas. Whether through established technology such as 3G/4G or potential disruptors like 5G and narrowband-IoT (NB-IoT), cellular providers are aiming to become the leading suppliers of connectivity for smart cities.

Significant Acquisitions and Service Offerings in North America

In recent years, a number of telcos have made bold expansions into the smart cities market. Verizon, for example, has been working to expand its presence in that industry. It made a major move to extend its footprint with the acquisition of smart street lighting and sensor network provider Sensity Systems in late 2016. Verizon is supporting a wide range of smart city applications, including transportation, public safety, city management, and smart buildings.

AT&T has also significantly increased its visibility in the market since its initial smart cities launch in 2015—notably through its role in the Atlanta and San Diego IoT platform deployment projects. It is supplying Bluetooth and Wi-Fi for short-range connectivity, plus fiber and LTE for backhaul to the cloud.

In early 2017, AT&T obtained exclusive rights to distribute the sensor nodes from Current powered by GE through a reseller agreement in the US and Mexico. AT&T will be the commercial lead on future smart cities projects, with Current as its technology provider.

Significant Global Acquisitions and Offerings

Telefónica, the Spanish-based global telecom provider, has also been targeting smart city opportunities. It was lead commercial partner in the SmartSantander project, which involved deployment of over 20,000 devices in Santander and the surrounding area (including sensors, repeaters, gateways, etc.).

French carrier and service provider Orange is leveraging its expertise in 4G, fiber, LoRa, Wi-Fi, and Bluetooth to install a network of connected sensors for Romania’s Alba Lulia Smart City 2018 project. Telefónica and Orange Group are key players in the development of FIWARE standards—an open source initiative that aims to establish a standard for smart cities based on the FIWARE platform.

Most recently, Telestra, an Australian telecom company, acquired fleet management systems provider MTData and created a partnership with Melbourne-based Smart Parking. The company has already won contracts to install Smart Parking’s sensors in five Australian council regions.

Telco Expansion Challenges Non-Cellular Connectivity Providers

The aggressive telco expansion into the smart cities market should serve as a warning shot to other providers of urban connectivity such as RF mesh and Wi-Fi players. These providers should quickly move to protect market share by emphasizing their relative advantages over cellular (e.g., private networks, lower operating costs) and developing more vertical solution partnerships and connectivity capabilities.

While most cities are likely to have multiple providers and types of connectivity for different use cases, cellular providers are making a clear push to capture the high bandwidth segment of the smart city communication networks value chain. There is evidence that resistance to public cellular is declining in the utility sector. With the deployment of new cellular technologies such as NB-IoT and 5G on the horizon, the same is likely true for cities.

 

Evolving Smart City Strategies: Five Trends and a New Challenge

— December 5, 2017

During research for the UK Smart Cities Index 2017, we had the opportunity to discuss the current state of smart city development with smart city leaders and other key stakeholders. They are now seeing years of work on developing city innovation programs coming to fruition as smart city programs become central to city strategies and successful projects are deployed at greater scale. This momentum is reflected in a number of emerging trends.

Bridges between Innovation and Operations

The leading cities have laid strong foundations for the development of innovation both technically (in terms of test beds and platforms) and culturally (in terms of a trusted ecosystem of partners). The challenge now is to integrate this innovation culture with the day-to-day operations of the city. These cities are strengthening the links between innovation teams and city departments. New pilots and demonstrations are also being more closely aligned to city strategies and priorities.

Emergence of City Platforms

Cities are developing more cohesive strategies for the deployment of new technologies. In particular, they are taking a more strategic view on the future deployment of Internet of Things (IoT) technologies and the necessary communications infrastructure. These cities have deployed or are planning large-scale deployments of low power networks, are vying to be test beds for 5G technologies, and are looking at future fiber needs to support these ambitions.

From Smart Cities to Smart Places

Smart city programs are branching out to include multiple local authorities and agencies at different tiers of government. A city-region approach enables closer integration across a range of services and offers the benefits of scale when applying for funding or tendering for new services or solutions. It also enables smaller cities and towns to be involved in more ambitious programs. At the other end of the scale, there is a growing focus on the development of smart districts and communities within cities.

City Partnerships

There is a strong desire among city leaders to build more public-private sector partnerships. One of the most notable developments in this regard is the increasingly close relationships that smart city programs are developing with local universities. Universities are not only providing research support, but are also often active players in defining projects, securing funding, defining strategies, and contributing to or providing leadership of programs.

A Holistic View on City Challenges

The opportunity to take a more holistic view of city challenges is one of the foundational concepts of the smart city movement. However, it is much harder to achieve in practice. The leading cities are now taking their experience with diverse pilot projects to develop approaches that embed such a perspective in the design of programs, scoping of projects, and measurement of benefits. Some cities, for example, are combining this with a focus on smart districts or communities where the complex interconnection between transport, health, energy, housing issues, and innovations can be tested at scale.

Learning to Manage Risk

These positive developments are leading to fresh assessments of the challenges facing smart city initiatives. While funding unsurprisingly continues to be a significant issue, the most commonly cited challenge to the wider adoption of new technologies was the ability of local government to accept and manage the risks associated with innovation—in financial, organizational, cultural, and technical terms. Finding new ways for cities to manage these risks—and the role that the private sector, national government, and other partners can play in reducing or underwriting that risk—may be the most important innovation of all.

 

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