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How Cities are embracing energy transition

The world of energy is transforming rapidly, with cities adopting decentralised, zero carbon strategies at the local level. A recent study by DNV GL shows that while significant attention has been given to the world’s mega-cities, smaller cities are proving to be nimble centres for energy innovation

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Energy industry projections recognise that the world population is expected to grow to nine billion by 2050, and up to eleven billion by 2100.  Meanwhile, despite efficiency gains, energy consumption is expected to continue growing at the rate of 0.7% per capita per year. The challenge remains how to accommodate these pressures on the planet in a sustainable way.

In the past, most city governments have not taken it upon themselves to ensure reliable and environmentally sound delivery of energy to their constituents, or to encourage efficient energy use.

An increasing number of cities worldwide are beginning to do so now, using their established statutory powers to respond to political expectations regarding environmental quality and economic development.

Over the past ten years, municipalities have emerged as significant players in global energy markets. Driven by a lack of consistent international leadership on climate change, and empowered by changes in technology, energy markets and regulatory policy, cities are seeking to accelerate the shift to cleaner, more efficient and decarbonised energy supply and use.

In response, traditional utilities and energy providers are exploring new opportunities to work with cities to achieve mutual goals for environmental sustainability, energy security and resilience and economic development.

A report by DNV GL released last month provides an opportunity for utilities, energy providers, policymakers, financiers and investors, and cities alike to gain insight into the actions of cities and local government in the transition away from fossil-fuel based energy resources to cleaner, renewable forms of energy.

The report entitled “Energy transition framework for cities: mid-size cities leading the way” shows for instance that cities are acting decisively to explore the use of decentralised energy markets and community choice aggregation to procure energy on behalf of their communities both at the  distributed and wholesale market levels.

The research also shows that cities are increasing their own staff capacity and resources to address climate change and lead new energy programmes while exerting leadership in programmes and policies to decarbonise energy products and use.

Based on an international survey of the energy-related activities of municipalities, the DNV GL report describes seven dimensions or ways in which cities are using their established powers to accelerate the energy transition at the local level.

To illustrate each dimension, the report provides case studies of best practices in city actions related to the energy transition. Ten cities were chosen due to their advances in energy transition and because the approaches they were taking were notable as an example that other cities can learn from and emulate on their journey along the energy transition.

The ten cities featured in the report are Palo Alto, USA, Santa Monica, USA, Cambridge, USA, Curitiba, Brazil, Bristol, UK, Groningen, the Netherlands, Antwerp, Belgium, Abu Dhabi, UAE, Melaka, Malaysia and Adelaide, Australia.

Energy technology is changing quickly, presenting new opportunities for cities to affect energy delivery and consumption and citizen engagement in sustainability. New distributed energy technologies include integrated solutions such as microgrid applications and energy storage for community resiliency. New smart building controls support the aggregation   of multiple sites to provide meaningful grid services and new revenue streams for residents and businesses.

The falling cost of renewable energy systems combined with liberalisation of energy markets that allow cities to procure energy on behalf of their citizens is changing our communities. DNV GL found that many cities are developing 100% renewable energy plans and roadmaps to identify how local jurisdictions can take advantage of new technology and market opportunities.

Cities are using their established powers to enact new city policies to accelerate adoption of energy efficiency and incentivise cleaner, more local renewable sources of energy. Local policies include energy disclosure, procurement practices, land use and zoning, in addition to voluntary   programme and education/outreach programmes.

The DNV GL report has identified sustainable governance as the first dimension of energy transition given efforts related to decarbonisation of energy supply and demand. Over the past decade, an increasing number of cities have inventoried their carbon footprints and developed roadmaps for meeting science-based GHG emissions reduction targets.

Utility and energy providers have been important partners in providing energy consumption data by customer or building sector, emissions factors, and even funding to assist cities in addressing their energy footprints.

“Sustainability governance is fundamentally about establishing structures and processes to ensure accountability, transparency, responsiveness, and broad-based participation to move cities towards a more sustainable energy future,” says Ditlev Engel, CEO DNV GL – Energy.

“The best practice indicators identify the necessary actions for cities to set clear policy objectives, measurement and tracking systems, and establish accountability within city government to achieve citywide goals.”

Of the ten case study cities, the city of Adelaide in Australia has the most aggressive target of becoming carbon neutral by 2025. Most cities have adopted targets consistent with the recommendations of the Intergovernmental Panel on Climate Change (IPCC) to reduce greenhouse gas (GHG) emissions by at least 80% by 2050 to reduce the probability of catastrophic climate change.

“Conducting a citywide GHG emissions inventory is the foundation for low carbon development planning by exposing the relative carbon intensity of different city sectors, including energy, water, and solid waste,” says DNV GL’s Betty Seto, Lead author of the report.

Nine out of the ten case study cities have completed city-specific GHG inventories, except Abu Dhabi for which an emirate-level (state-level) inventory was completed. A key challenge for cities worldwide is timely and consistent access to aggregated consumption data in the community, the availability of which varies significantly across different utility and energy providers.

Cities also face the challenge of data privacy rules, where utilities are often not allowed to share energy consumption data, even when it is aggregated.

While the energy consumption related to city government operations, including city-owned infrastructure and fleet vehicles, is generally small compared to the city as a whole, municipalities recognise that they play an important role by leading by example. This is the second dimension identified by the DNV GL research.

“City actions in their own facilities and operations has a powerful impact by inspiring citizens and local businesses throughout the community and demonstrating the feasibility of the energy transition to cleaner, more resilient sources of energy,” says Seto.

To date, municipal energy projects related to energy efficiency, smart grid, and distributed energy resources (DERs) have offered an opportunity for both city governments and their utility or energy partners to implement highly visible, flagship energy projects to build community goodwill.

Leading cities see their own facilities and operations as test-beds for demonstration pilots of new emerging technologies, which requires close collaboration with utility partners.

While cities can identify potential municipal projects and sites, they typically have limited funding for infrastructure demonstration projects and not as much necessary technical know-how, which are both opportunities for engaging with utility and energy providers.

Six of the case study cities have adopted energy reduction targets related to their own city operations. Energy goals vary in scope, ranging from building energy use only to encompassing fleet vehicles. Furthermore, some cities such as Palo Alto, Cambridge, Antwerp, and Santa Monica include a renewable energy generation target in addition to the energy reduction goal.

Many cities throughout the world have adopted green building policies for their own municipal buildings, utilising standards such as LEED®, ENERGY STAR®, BREEAM, Green Mark, DGNB or setting net zero building targets.

The Abu Dhabi Urban Planning Council has developed its own green building rating system called the Pearl Rating System, as part of their sustainable development initiative Estidama. The U.S. cities surveyed (Palo Alto, Cambridge, Santa Monica) are leading the way amongst all of the case study cities with ordinances that require a LEED silver rating for all new City buildings, which are typically over 10,000 square feet.

Furthermore, the City of Cambridge developed a net zero energy building roadmap to identify appropriate near-term strategies and actions to ensure that all new construction in the city is zero net energy by 2050.

By far, the most prevalent renewable energy technology being adopted is the installation of solar photovoltaic on City facilities. For the eight case study cities with municipal solar PV installations, the number of facilities with installations ranges from four to eight. In addition to distributed solar systems such as rooftop, in Bristol, Groningen, and Melaka city, governments are directly involved in the development/ownership of utility-scale solar PV power plants.

Cities are increasingly pursuing clean energy microgrids, with four of the case study cities incorporating energy storage and dynamic load control. The projects are seen as a multi-benefit solution that increases energy reliability for critical facilities and reduces reliance on fossil fuel-sourced back-up power.

The cities range from having one to four buildings or sites involved in the microgrid projects to achieve net zero energy buildings and protect critical city assets. While utility and energy providers are typically involved with local microgrid projects, the scalability of such projects offers opportunities for new revenue models to facility owners and grid operators, which are still being explored.

Cities are also seeking to increase the uptake of electric vehicles in their community as a near-term opportunity for addressing both climate change and local air quality. Electric vehicles are compelling because existing electrical infrastructure is readily available and rapid deployment doesn’t require cultural or behavioural shifts.

The report also points out that cities can influence energy use in their communities in many ways such as permitting requirements, programmes for energy use disclosure, land use and zoning, building codes, public finance, and incentives.

It however points out that government regulatory mechanisms to increase end-use energy efficiency varies significantly worldwide, ranging from nationally-based systems In Europe to utility-led programmes in the United States.

“In this dimension of the energy transition, we explore how cities are using their established powers to help residents and local businesses to reduce energy consumption and save money. As electricity is increasingly sourced from carbon-free, renewable energy sources, cities are also exploring policy opportunities to shift preferences to electrify everything, even things not traditionally electrified such as transportation and heating,” says Seto.

“Cities are emerging as important market players in the “harmonisation” of consumer benefits and “system” benefits. However, as cities seek to shift significant energy loads previously served by direct combustion of fossil fuels, the grid impacts have not been fully explored.”

In addition to energy use, cities are increasingly using their authority, influence and budgetary powers to influence the design and delivery of locally appropriate, renewable energy solutions for energy systems. Improvements in distributed energy technologies such as solar PV and storage have created new applications and opportunities for cities that previously were not viable.

These technology improvements and ongoing cost reductions, combined with heightened consumer awareness and national and state incentives, continue to bolster the growth of distributed energy resources. Of these technologies, cities are primarily exploring how systems such as solar photovoltaic (PV), microgrids, and battery storage can benefit them.

Cities are ultimately interested in the provision of zero emission, clean energy sources, recognising that both distributed energy resources as well as centrally grid-sourced renewable energy are necessary. Based on research conducted by DNV GL, cities view their utility and energy providers as key partners but do not know how to or who to approach.

“Furthermore, they recognise concerns from utilities about shifting away from the current centralised model. At the end of the day, much of the city action has been driven by the desire to procure higher percentages of zero carbon energy sources than typically available through traditional utility and energy providers, and is indicative of changing expectations of utility customers,” says Seto.

The rapid advancement of technology over several decades has provided opportunities for better service delivery to city residents and businesses through improvements in efficiency, speed, and functionality, says Seto.

For instance, electricity meter-reading equipment that once relied on a person checking individual buildings can now be managed remotely and provide more granular energy use data.

A new generation of digital technologies offers a range of previously unforeseen capabilities for cities to serve their citizens in more innovative and sustainable ways by improving resource efficiency and operations performance.

While the inclusion of new energy-related technologies and uses of data are beginning to support sustainable cities, municipalities need to engage with their communities, the utility, and energy providers to ensure grid harmonisation, as well as identify complementary initiatives and potential co-funding opportunities, adds Seto.

“The concept of smart cities, using big data and information communications technology (ICT) to improve critical urban infrastructure and services, promises profound changes to the urban experience. Yet growth in big data and the IoT alone does not improve quality of life or advance critical climate and sustainability goals,” Seto points out.

“While the smart city concept began with a top down, autocratic approach to technology procurement and management, the evolved version of smart cities puts citizens and societal goals at the centre of the strategy.”

The report by DNV GL reveals that the next version of smart cities still includes city-led planning and decision making while also incorporating a significant role for the community and other stakeholders, in addition to planning and decision making.

It suggests that piloting new technologies, putting innovation at the forefront, and involving the private sector in data analytics will all contribute to effective scaling of smart technologies that improve life for all.

Another dimension identified by the report is financial innovation. It says that new financial and business models for energy projects are empowering cities in new ways.

Financing of sustainable cities projects and energy transition initiatives is a rapidly evolving field, presenting new opportunities to the investors in sustainability and to the municipalities.

The Brookings Institution estimates that the world needs to build approximately $89trn in new infrastructure over the next 15 years alone to transition to a low-carbon economy.

DNV GL’s research indicates that mature projects in bigger cities may be more easily financed, while some of the smaller yet impactful projects are simply not being marketed/communicated to the right investors or de-risked properly.

“Often projects with higher ecological benefits require that public finance and private capital work together to create sustainable urban environments.  It is critical to prioritise and communicate the pipeline of investable opportunities to better integrate clean energy and sustainability project finance into overall city planning and financing efforts,” says Seto.

Cities are mobilising both public and private sector capital through green finance mechanisms such as energy-as-a-service contracts or energy performance contracts, various permit fees or tax revenues, bonds, explicit debt or equity investments, leases, financing, grants or loans.

While some utility providers are exploring “on-bill financing” for energy efficiency projects through utility financing programmes, there is an opportunity in the market to leverage the investor interest in sustainability and “green investing” with the real-world city projects around the energy transition to cleaner, more renewable energy sources.

The report suggests that governments can use some of their funding to incentivise clean energy markets, seek matching incentives/funds from private markets, and begin to create capital expenditures in markets not currently scaling fast enough.

As cities strive to protect their residents and business from climate change-related events and play a larger role in the energy landscape, the scope of emergency preparedness, management, and recovery will extend beyond traditional practices to encompass energy assurance.

The expansion of city-owned energy assets and distributed energy resources will require that city staff responsible for emergency services and public works coordinate more closely with utility companies and other energy providers.

This provision of being a resilient community and managing energy networks during an event in a way that provides energy to businesses and citizens of all income levels in times of need is an emerging area of focus, and one where greater utility and city collaboration is needed, says DNV-GL in its report.

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