City DISCO: Financing one hundred CO2 neutral smart cities in Europe

Photo by Anne-Marie Pellegrin

Catchy name, right? The City DISCO is on! We’re not talking about drunk dancing here, though – DISCO is short for Digital City Service Contracts. This may sound more boring than a party – but if we are to achieve speed and scale in transforming our European cities towards carbon neutrality, new financing and delivery vehicles like City DISCOs are urgently needed.

A blog entry on the occasion of the Smart City Expo World Congress 2021.

 

With the EU Mission Climate-Neutral and Smart Cities, the European Commission acknowledges the role cities play in combating climate change. Its ambitious objective is to transform at least one hundred cities to become carbon neutral by 2030. If we are to get close to the famous 1,5 °C degree goal, we even have to use this objective as a mere launchpad for clean and innovative urban solutions from Europe to be scaled all across the globe.

For the last seven years, cities across Europe have been able to collect ample experience with smart solutions, decreasing their emissions with the help of various projects. As one of the most important ones,  the European Innovation Partnership on Smart Cities and Communities (EIP-SCC) for example has not only funded more than seventy smart cities with hundreds of million euros, it has also provided the ground for lots of pilots and proofs of concepts in numerous domains – from smart parking sensors to large-scale interventions in heat networks. You can find many of these on the Smart Cities Marketplace.

However, all the projects faced the challenge that pilots often remained pilots in defined areas, making every city end up inventing the infamous wheel over and over again. Here I’ve written about some of the lessons learned. The Mission seems to be an adequate next step towards solving some of the challenges identified. It stresses scale, emphasizes the role of private investment and seeks to de-risk innovation and smart solutions. All of this is very much needed if we are to step out of the wheel of pilots and unlock large-scale markets for data-driven services in cities and regions.

 

The role of integrated infrastructures for carbon neutral cities

Virtually all solutions to reduce cities’ emissions build on data. Whereas early pilots have kept and processed data on single-purpose IoT platforms, for example for air-quality monitoring or for building energy management, it has become painfully evident that we need to share data across silos to achieve its full potential and reduce our climate impact. This has shifted the focus to urban data platforms and integrated infrastructures like sensors, cloud services and big-data analysis as key building blocks of the carbon neutral city.

Thus, just like railroads in the 19th and roads in the 20th Century, Urban Data Platforms and integrated infrastructures are the backbone of our urban economies in the 21st Century. But most cities have not reflected this within their budgets, let alone undertaken more complex calculations of investments.

Same as traditional infrastructures, Urban Data Platforms and integrated infrastructures need upfront public investment and continuous maintenance. At the same time, the long-term benefits they provide are a lot larger, since they can draw on rapidly decreasing costs. Once a dataset has been connected, it can be re-used and automated in unlimited ways with generating close to no additional costs.

Here lies the big opportunity – but also the challenge for a more innovative financing.  This challenge often goes back to the way our cities are governed: A small digital unit with almost no budget is expected to finance, build, and maintain the Urban Data Platform, while savings and revenues occur unevenly in various domains and departments. These, however, will not share a dime of their own budgets to facilitate a new digital unit.

We finally need to find new ways of financing urban data platforms and integrated infrastructures until a new generation of city executives embraces them as basic amenities and reflect this within the city budget.

 

The City DISCO – financing the digital transformation of cities 

And this is where DISCOs come in. Digital City Service Contracts can become the basis for successful investment partnerships between cities, finance institutions and digital service providers.

The key lies within the switch from a so-called CAPEX (capital expenditure) to an OPEX (operational expenditure) mindset. Upfront costs for urban data platforms vary, but are often neglectable. They start at the range of a few thousand Euros and can go  up to a couple of hundred thousand Euros for an entire city. If hardware is involved, they can end up at a few million. Yet, the investment is nowhere close to investments in traditional city infrastructures like roads and rails.

On top of the urban data platform, the city and third parties can build and operate an increasing number of services and use cases across various domains, such as sharing mobility, smart street-lighting, or improving waste management. This is where external funding stopped in the past – reason being that complexity rises exponentially when squeezing an entire ecosystem of service providers into contracts that try to guarantee outcomes in individual city settings. But what if there was a set of five to seven “killer applications” out of which the city needed only two to generate reliable savings or revenues? These applications in turn could be used to refinance the investment in digital infrastructure over couples of years.

After millions have been spent on pilot data-driven solution sin cities, we are now in the position to frame this set of “killer applications” which can serve as delivery vehicle for integrated investments into urban data infrastructures.

Good examples for these would be

  • Multimodal and shared mobility apps like Whim or Jelbi
  • Smart Parking and dynamic parking pricing
  • Using the data from building energy management systems to increase efficiency of the municipal building stock
  • Intelligent routing of garbage trucks
  • Intelligent street lighting
  • Smart Water Management to prevent water losses and reduce heat island effects
  • Floodwater prediction and early warning systems
  • AI-based background services for the improvement of citizen services.

Beside this list there are numerous individual applications that can save a city large amounts of money or generate additional revenues –  for example from advertisement or shifting to digital services. Clearly, each application is targeting a different beneficiary so that a City DISCO will only work if city actors find the right local model for sharing costs, savings, and revenues. This is the reason why I propose to start with only two applications and a simple agreement between city and service provider based on tangible KPIs.

 

De-risking smart city finance through EU Missions 

It is obvious that no organization has the capacity to deliver the City DISCO by itself – same as doing a party is not a lot of fun all alone. What is needed is a joint effort of investors, cities, companies, and research to build and test this investment portfolio and underpin it with evidence on guaranteed savings in dependence of a few external KPIs – for example a city’s size.

It’s now time for the EU Mission on climate-neutral and smart cities to act as the facilitor it should be. The Mission needs to bring the right actors together to standardize, test and de-risk this investment portfolio to make data-driven carbon neutral cities reality. Or in short: To get the party started!

 

If you have any questions or remarks concerning this blog article, don’t hesitate to contact Alanus von Radecki!

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