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"The principle of sustainability makes it essential to find new ways of thinking and acting about how we produce and work, our means of transport, our dwelling places, and how we consume. Sustainability is forcing us to become able and willing to transform."

Annual Conference of the German Council for Sustainable Development
Speech by Chancellor Angela Merkel
29 May 2017, Berlin

"I have made my choice: I am profoundly convinced that Europe must pioneer an effective, equitable ecological transition. For this to happen, we need to transform our transport, our housing, and our industries. For this to happen, we need to invest and provide powerful incentives for this transformation."

Initiative for Europe
Speech by President Emmanuel Macron at the Sorbonne
26 September 2017

Europe and Energy Transition

Major economic revolutions happen when new communication technology converges with new systems of energy. Our economy has entered a new industrial revolution, and its centralized models are being challenged by the combined effect of the digital revolution and energy transition. This transformation involves developing new ways of organization, and finding new growth levers and markets. We must invest in innovation to guide the sustainable, digital transformation of Europe's economy.

France and Germany share a common goal: for Europe to lead the way on ecological transition. European initiatives put forward in the line of the Paris Agreement and One Planet Summit remain limited. They are failing to get the measure of ecological challenges and world competition, marked by US, Israeli, and Chinese offensives. To achieve the promises of a low-carbon economy based on better use of resources and job creation, it is essential for Europe to invest in sustainable development and launch a concrete initiative in a key sector: smart cities.

Sustainable Cities – A European Project

Cities account for over 70% of CO2 emissions. (1) Although CO2 emissions are the main threat to the planet, they are also an area where innovative solutions are being developed. These solutions are set to revolutionize the energy, transport, and water/waste management sectors. By making buildings more energy efficient, developing new forms of mobility and creating smart electrical circuits, many European cities are turning the concept of smart cities into reality. Nevertheless, introducing new environmental technology into urban settings remains a long-term process that needs appropriate funding tools.

The transformations entailed by the digital revolution and energy transition are not just impacting cities, but also companies working in an urban environment. First-generation smart cities are characterized by the presence of traditional operators (Veolia, Vinci, Bouygues, and Engie). These companies are working to optimize processes and flows so that the authorities can provide more efficient services. European players have successfully held their position in this traditional model.

As a result of recent developments in the smart-city sector, a new horizon is now emerging. Pure players from the digital world (Google, Waze, Citymapper, and Uber) are elaborating a relationship-based vision for smart cities. Digital services in smart cities are aimed directly at users, who participate in service quality by supplying their data. This new approach is challenging the business models of traditional operators, weakening their margins and position in the value chain. This approach is mapping out a new global smart-city market, and is something for which European companies are ill-prepared. (2)

Establishing a specialized smart-city innovation fund must support traditional players in their transition to a relationship-based model for smart cities. In addition, it must encourage European champions to emerge on this new market.

A Dedicated Innovation Fund: Alhambra

The Alhambra smart-city innovation fund is a European response to the challenges of ecological transition. Its scope is limited to companies developing innovative solutions in the strategic sectors of eco-mobility, energy transition (smart grids, home automation, and smart buildings) and the circular economy. In this way, these companies are helping reduce CO2 emissions and optimize urban-resource management.

Experience shows that companies run into difficulties during the pre-production phase (early stage). The fund is therefore aimed at start-ups launching their roll-out phase and that have funding requirements of €2-4 million.

One of this fund’s features is that it combines a traditional venture capital fund with a start-up accelerator, providing operational and strategic support for the companies it benefits. A specially dedicated incubator for smart-city players may be set up in one of Europe's eco-districts, which will improve knowledge sharing and transform innovation research. The fund also operates with support from an open-innovation network. This promotes filtering between innovative start-ups, SMEs and mature companies, helping European champions emerge and traditional players adapt to the market's transformations.

France and Germany – Driving Sustainable Innovation

Brexit and the success of Eurosceptic parties show that the European project has lost impetus. In the face of this, the onus is on France and Germany to relaunch the European ambition by putting forward joint, pragmatic, and concrete initiatives. The smart-city innovation fund is a Franco-German initiative for Europe: the target companies are active throughout Europe and other member states may decide to participate in the fund. This is very much a joint initiative to promote eco-friendly, job-creating European growth.

The fund’s Franco-German aspect lies in its financing, with first closing during its initial development stage set at €50 million. The fund is sponsored by a public-private partnership bringing together funding from stakeholders on both sides of the Rhine. Banks such as CDC, BPI, and FfW, as well as various German states (Länders) are among the public investors expected to participate. Key private investors include the sector’s big companies (in particular, EDF, Enedis, Veolia, Engie, Eon, Siemens, Valeo, Bosch, and SAP).

The project’s success is based on putting together a binational team, with public and private networks in both France and Germany. This team has recognized expertise in the utilities sector and knowledge of smart-city disruptive technology. Thanks to its support of Ecosummit and participation in the Solar Impulse Foundation's World Alliance, the team maintains an operational network of start-ups, which enables appropriate sourcing. Support from the French and German governments is helping make the fund more credible. As a result, it can commit to sustainable innovation projects, guaranteeing their medium- and long-term profitability.

1 - Theys, J. and Vidalenc, É., Repenser les Villes dans la Société Post Carbone, French Ministry of Ecology, Sustainable Development and Energy’s General Commission on Sustainable Development, and ADEME (French Environment and Energy Management Agency), September 2013.
2 - The consulting firm Grand View Research (GVR) estimates that the global smart-city market will grow 13.6% a year between 2014 and 2020, reaching a value of almost $1,400 billion by 2020.

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