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Thematic investing

Powering smart cities with clean energy

Powering smart cities with clean energy

April 2017

The Advisory Board

Smart cities are re-shaping how we generate, store and use energy. Investors have a unique opportunity to help shape tomorrow’s metropolises.


Cities are very power hungry. Globally, they house 54 per cent of the world’s population but account for 70 per cent of its greenhouse gas emissions.

Cities' impact on the world
cities representation
Source: World Bank

With the world’s population set to rise to 9.7 billion people by   20502 and natural resources shrinking, cities have to become smarter.

Energy efficiency is one key area for progress. Experts from the Pictet-Clean Energy strategy’s Advisory Board argue that this involves not only embracing new forms of energy generation and storage, but also encompassing e-mobility, innovative building technologies and improved connectivity. Buildings and transport, unsurprisingly, are the two biggest consumers of energy within a city – and also the biggest polluters.

In New York, for example, transport is responsible for 22 per cent of all greenhouse gas emissions, while buildings – commercial and residential – add another 63 per cent.3

Building opportunities

Fortunately, several new technologies offer the potential to reduce the energy consumption in both buildings and transportation. Today’s smartest buildings, for example, have fully automated and integrated lighting systems which combine efficient LED lights with sensors, connectivity and presence controls. This not only enables building owners to save energy, but also generates valuable data, which can be used to enhance the experience for office workers, shoppers and residents.

The technology can also be transferred outdoors, with Rome as one of the latest converts to connected LED street lighting. Officials in the Italian capital estimate that the new system will cut carbon dioxide production by 350,000 tonnes and save EUR260 million euros over the next 10 years, easily recouping its EUR50 million cost.

Leading insulation manufacturers, meanwhile, have developed vacuum insulation panels, which have a thermal conductivity of just 0.007 W/m.K – three times better than the most effective air-filled equivalents.

That, in turn, can mean less need for heating, ventilation and air conditioning (HVAC).

city case study: sources of greenhouse emissions in new york
source of greenhouse emissions in New York city
Source:  Inventory of New York City Greenhouse Gas Emissions in 2014

Further savings in this area can be made through more efficient systems as well as through more targeted use and automated sensors. Cities are increasingly driving the change. For example Singapore, where air conditioning is responsible for up to 40 per cent of all electricity consumption  has recently raised standards for HVAC systems and has pledged USD6 million to research how to improve efficiency even further.

The urgency of the problem in Singapore is exacerbated by the fact that it is one of the world’s leading hubs for data centres, which are in turn one of the most power hungry type of building in any city. Tellingly, while the capacity of a normal office block or a house is usually measured by the area of its floor space, in datacentres it is judged by the power capacity in megawatts.

According to the consultancy McKinsey, the average data centre now uses the same amount of energy as 25,000 households. Such high consumption is costly not only for the environment but for the companies who own the data centres, with as much as 60 per cent of their building operating costs coming from power consumption.

That gives a strong incentive to become more economical and green by embracing energy efficient technologies – from semiconductors to cooling equipment – for both data storage and data transmission. New less power-hungry chips are being adapted to create microservers, for example, the market for which is set to be worth USD16 billion by 2019.

The potential for innovative companies in this field, and therefore the size of the investment opportunity, is amplified by the growing need for data from the increasingly tech-driven smart cities.

Driving efficiency

We also need to reduce the deadly urban pollution problem. Here, transport is one of the biggest culprits, and our advisers noted two accelerating trends that over time should reduce its negative impact – the move towards electric vehicles, or e-mobility, and the gradual shift in favour of assisted and autonomous vehicles.

Plug-in hybrids and even full electric vehicles are becoming a more common sight on the roads. Car manufacturers have accelerated their plans and are launching electric vehicles at a rapid pace, targeting them to reach around 20-25 per cent of their mix by 2025. In parallel, artificial intelligence systems in cars are forecast to rise to 122 million by 2025 from just 7 million in 2015.4 The latest advanced driver assistance systems (ADAS) are making car travel a less risky and more sustainable pursuit. Some of the ADAS features are already reducing fuel consumption through more fluid driving dynamics, particularly on highways. Over time, the flow of traffic should be much improved as cars become more connected and more automated.

Such technological progress is made possible by rapid innovation in power semiconductors, sensors and other solutions targeted at vehicle electrification, improved fuel efficiency and ADAS capabilities. As a result, technology companies are playing a much greater role than before in the transformation of the car industry. Hybrid and electric cars have multiple times more semiconductors than traditional internal combustion engine vehicles, while ADAS functionalities add another layer of semiconductor or sensor content.

As e-mobility becomes more prevalent, we see car manufacturers working together with utility companies to build out networks of charging stations. Four major car makers – Volkswagen, Daimler, BMW and Ford – have already joined forces to create a European charging network for electric cars, encouraged to do so in part by new regulation on CO2 emissions.

Smart cities can become key centres for amalgamation of technologies that enable smart grids and energy storage.

Electric cars of the future can be made even greener through intermittent power generation from renewable energy sources, absorbing any fluctuations with the help of a smart grid – an electricity supply and storage network that uses two-way communication with smart metres, charging stations and other devices to adapt to peaks and troughs of use. In the European Union alone, such demand-based energy provision could save about EUR100 billion per year, according to official estimates.

Smart cities more broadly can become key centres for the amalgamation of technologies that enable smart grids, storing energy from solar and wind and distributing it in an integrated fashion. Indeed, as most of the new cities are expected to be built in equatorial Asia, solar will play a key role in smart cities.

The smart technology in itself is also becoming quicker and more efficient to produce. Electronic design automation (EDA) software means that prototypes can be developed and tested on a computer, eliminating the need to manufacture multiple iterations and speeding up the delivery of semiconductors and other new products.

For investors, this means that the advent of energy efficient smart cities opens up opportunities not only in innovative new companies across various clean energy themes, e.g. building technologies, smart and e-mobility, manufacturing, clean energy providers and energy storage/smart grid, but also in more traditional technology firms that now have new markets to target.