According to the International Energy Agency (IEA), empowering cities to take climate action is essential to achieving ambitious net-zero emissions goals. The World Bank reported that although cities generate over 80% of global GDP, they consume over two-thirds of the world’s energy and account for over 70% of global CO2 emissions. With projections indicating that by 2050, over 70% of the world’s population will reside in urban areas, the demand for sustainable urban energy infrastructure is poised to surge, which means energy systems that enable cities to grow sustainably in a net-zero future are needed.
The IEA report emphasizes the importance of digitalization and climatetech solutions for establishing resilient and sustainable urban energy systems, as they can accelerate the energy transition and facilitate smarter, more informed decision-making to meet cities’ energy needs. However, achieving a high level of digitalization and integration of new technologies that significantly reduce greenhouse gas (GHG) emissions in cities will require strategic planning, execution, and alignment across all levels of government, as well as adequate funding and infrastructure to address capital shortfalls, lengthy project timelines, and cost overruns.
According to Deloitte, cities must focus on identifying viable business projects and leveraging innovative financing strategies to attract private capital and partners that advance sustainable urban energy systems within their regions. In a series of interviews, leading experts shed light on how well-designed policies and coordinated infrastructure development can bring new climatetech solutions to the market and attract private capital for developing and deploying sustainable projects more efficiently in cities worldwide.
Well-designed policy incentives can bring climatetech solutions into the market
The World Resource Institution emphasizes electrification to reduce CO2 emissions in cities, focusing on two key areas: the transition to electric transport and the adoption of heat pumps, which can significantly reduce buildings’ GHG emissions. However, to fully harness the decarbonization benefits of electrification, it is essential to shift electric generation to low-carbon sources, such as renewables, and expand capacity and flexibility to accommodate cities’ increasing demands for electricity (Figure 1).
Figure 1: Three Steps to Zero-Carbon Cities
Recognizing the need to decarbonize cities, governments have started implementing targeted policies and programs to electrify the transport and building sectors, as well as encourage consumers and businesses to become sustainable through new policies. For example, the Inflation Reduction Act and the Bipartisan Infrastructure Bill have put forward various incentives to promote decarbonization and electrify city buildings and transport in the United States. Meanwhile, in the European Union, 112 cities have been selected to participate in the EU mission for 100 climate-neutral and smart cities by 2030, where these cities will receive funding for projects and assistance from the EU mission platform.
Laura Fox, co-founder and managing partner at Streetlife Ventures, said, “Globally, governments are using a combination of sticks and carrots to promote electrification in cities. Whether through incentive-driven strategies like those in the United States or implementing carbon pricing solutions like in Europe, these multifaceted approaches are helping bring new climatetech solutions and creative approaches into the market that can enable cities to reduce their carbon footprints.”
For example, in Ithaca, a small city in upstate New York, the City Council adopted the Efficiency Retrofitting and Thermal Load Electrification Program to transition homes’ energy sources from fossil fuels to electric technologies and decarbonize all of its buildings by 2030. To finance this program, Ithaca has been working with Alturus, a private equity firm and BlocPower, an energy efficiency company, to bring in investors and pay the upfront costs of the buildings project, securing $100M in 2021. Meanwhile, in London, UK, an Ultra-Low Emission Zone (U.L.E.Z.), which charges $135/day to enter, has led 73.5% of Londoners to change their modes of transportation and create new opportunities for micro-mobility and electric minibuses.
For cities to best leverage these emerging technologies and the benefits from digitalization to electrify their buildings and transport sectors, Fox said, “Cities, investors and startups will need to work more closely, especially when capital is tight, and new solutions are in demand. For instance, post-pandemic, New York City’s NYCEDC
EDC
In addition, as cities worldwide adopt measures to reduce their GHG emissions, Fox highlights, “the ‘M.O.R.E.’ framework (a term she coined in 2022) can be a valuable concept because it helps key stakeholders focus on the different layers required to execute their GHG reduction strategies—particularly in the urban mobility space—and factor in the city’s unique needs.”
A reliable and clean grid system is central to decarbonizing cities in emerging markets
According to the United Nations, the world’s population growth has become increasingly concentrated in developing countries, with the share of people living in developing countries increasing from 66% in 1950 to 83% now and projected to reach 86% by 2050. The OECD has noted that the path toward net-zero emissions by 2050 will require emerging markets to transform their energy systems, as they are amongst the worst affected by climate change and have the most to gain from collective climate ambition. C40’s analysis has shown a greater proportion of petroleum fuel usage in the Global South vs. North (Figure 1), with the Rocky Mountain Institute advocating for full-scale deployment of commercially proven clean energy technologies to meet growing demand and replace uneconomical fossil fuel generation.
Figure 2: Energy Use in the Global South and North
Given the importance of rapidly transitioning the energy system across the Global South, Nancy Pfund, founder and managing partner at DBL Partners, said, “Cities in these regions are fast growing and critical to mitigating the impacts of climate change. As much of the energy infrastructure is yet to be built, we need to bring cost-effective renewable and reliable sources of electricity to prevent new installations of fossil fuel infrastructure and the associated carbon emissions that are locked into place for decades.”
With many cities in the Global South facing significant grid stability and reliability challenges, the World Bank notes that distributed energy resources (DERs), such as mini-grids that use renewable energy and combine storage technology, are crucial for driving inclusive growth and decarbonizing the economy. For these reasons, Pfund said, “As large-scale decarbonization efforts are closely connected with a clean and reliant grid, cities and towns that incorporate DERs to enable the installation of reliable, renewable charging and storage infrastructure will stand to benefit—not only in terms of reducing their GHG emissions but also enabling broader sustainable economic development goals.”
For example, Pfund noted that in Haiti and South Africa, Zola Electric rolled out its end-to-end grid management solution called “Vision” to partner with Haiti Green Solutions, a local solar developer, and Digicel, a telecommunication company, to provide more reliable and cost-effective electricity access in regions where blackouts are common and manage demand spikes, which can overload the grid.
To fully scale these DER solutions that use software and monitoring solutions to manage energy demand with supply, Pfund underscores, “More investment is needed, and, over time, better digital connectivity in emerging markets will facilitate the financing of new infrastructure that can enable these projects to deliver a return.”
Since DERs, like mini-grids, are best suited to servicing mid-density communities (Figure 3), USAID notes that integrating the national grid with DERs can provide more cost-effective power to a larger base of consumers.
Figure 3: Mini-grid space that is optimal for mid-density communities
However, financing the updates and integration of privately owned mini-grids to the central/national grid requires additional capital and the development of substations (including transformers). As a result, Pfund recommends that “countries adopt policy clarity and ownership rights for integrating DERs with the national grid. In countries like Nigeria that have adopted such measures, electrification is taking place more quickly and enabling communities to access clean electricity in the process.”
A collaborative approach is needed to implement and manage sustainable projects
According to the Royal Bank of Canada, high-tech and smart city solutions can enable urban sustainability and foster growth in cities as environmental pressures and infrastructure needs mount. However, despite the potential of these solutions, Marsh Mclennan’s report noted that, of the cities with a smart city roadmap, only 16% have mature projects running, and 30% of current smart city projects will likely be discontinued by 2023.
Aside from constructing sustainable projects, managing and building trust among residents remains a constant challenge. For example, the New York Subway’s farebox revenue has fallen 37% from pre-pandemic levels due to a fall in ridership and service bottlenecks. Meanwhile, projects like Sidewalk Labs have faced hurdles in rolling out the full project due to data privacy issues.
As a result, Michael Tremblay, President and CEO at Invest Ottawa, said, “A multifaceted approach is often required to build, manage and scale sustainable smart city projects that meet growing demand and capitalize on global market opportunity. To address these challenges, mutually beneficial collaboration among regulators, corporations, academia, and technology developers is essential. This is particularly important to manage the complexity, cost, and risk of visionary initiatives with the potential to achieve long-term economic, social, and environmental benefits.”
For example, Invest Ottawa-led AreaX.O has been evaluating autonomous electric vehicle (A-VE) safety at road intersections and battery consumption. To demonstrate the project’s findings, Sonya Shorey, VP of strategy at Invest Ottawa, said, “Area X.O partnered with the University of Warwick to share their data and enable project stakeholders, which includes regulators, technology developers, and corporates, to access the Safety Pool™ Initiative, a global database of Automated Driving System (ADS) data to evaluate the outcomes against those from similar global tests, and bring more transparency into decision making.”
Through this collaborative approach, Shorey adds, “Project partners such as Transport Canada and other regulatory bodies are better equipped to shape policies and regulatory frameworks to facilitate the safe adoption of these new technologies and devise a roadmap to bring these new solutions to the market, like Ottawa’s low-speed automated shuttle (LSAS) trials on public roads.”
To address data security challenges that are often critical to deploying connected solutions like A-VE charging and route planning, Tremblay recommends “starting the development in private gated innovation sites that enable safe and secure experimentation and risk management. At AreaX.O, we have several smart mobility projects leveraging advanced communications systems that are iterated, tested and validated by government regulators and BlackBerry QNX, a V2X data and cybersecurity partner who is part of the end-to-end process.”
By adopting a phased approach that enables the project development in private gated sites followed by carefully managed introduction into public spaces with the community, Tremblay said, “Cities will be better positioned to implement smart city solutions that reduce GHG emissions, gain trust from residents and deliver long-term economic and social benefit.”
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