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

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.

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.

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.

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).