Energy transition in cities

NARRATOR Welcome to the DNV Talks Energy podcast series. Electrification, rise of renewables and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.

MATHIAS STECK Welcome to the first episode of series four of DNV Talks Energy, here from the Global Smart Energy Summit in Dubai. My guest today is Betty Seto, Head of Department, Sustainable Buildings and Communities of DNV. Hi Betty.

BETTY SETO Hello, Mathias.

MATHIAS STECK Nice having you here.

BETTY SETO Thank you very much.

MATHIAS STECK We want to talk about today the report we launched here in Dubai called Energy Transition Framework for Cities, and you will talk a little bit about what you found out. But before we do this, it would be great if you could introduce yourself as a person. Also tell us what you are doing in DNV.

BETTY SETO Sure thing. I am Betty Seto. I am Head of Department, as you mentioned, and I lead our sustainable buildings and communities team, where we provide carbon neutral cities and sustainability services for cities as well as for buildings. We work both with municipalities and also with architects and project developers and building owners to help them to be more sustainable in the built environments.

MATHIAS STECK Right, so let’s get right into this report. Of course, I would be very interested, what are the highlights you found in your studies.

BETTY SETO The highlights that we found are that mid-size cities are doing some very, very innovative projects and initiatives, and setting ambitious targets that are driving many of their energy and sustainability initiatives. There are seven dimensions, and similar to the concept of Seven Habits for Highly Effective People. It’s seven habits of highly effective cities in the energy transition, and it all starts with sustainability governance, and how do cities set goals, how do they set policy, how do they set the vision for a sustainable and carbon neutral community.

MATHIAS STECK The selection of cities I saw in the report was quite interesting. You didn't take the mega cities, you took rather, I don't want to call them tier two cities, but smaller ones, and some which are close to our heart, like Bristol for example. Can you talk a bit about the cities you selected and give us a bit of a background why those?

BETTY SETO Sure. Why mid-size cities? Well, we feel that a lot of attention has been paid to mega cities, and there is a lot of activity happening at that level, but there is also significant innovation and a can-do attitude that mid-size cities have, and they can be more nimble and they also comprise a greater proportion of the world’s population in total. We felt like we wanted to highlight the really interesting work that is happening at the mid-size city level that perhaps many people haven't heard that much about to date.

MATHIAS STECK Yes, so maybe we can change this today. That would be good.

BETTY SETO Absolutely.

MATHIAS STECK If we talk about the opportunities which come for cities with also the pressures around sustainability and being more environmentally friendly, could you talk a little bit about the motivations of cities doing this, and maybe pick some from your report comparing them?

BETTY SETO The motivation of cities has really been driven by I think the climate imperative, a realization that the world is not moving fast enough to address climate change and to address global emissions. If you look at our report, we do highlight the greenhouse gas emissions reduction targets that many of the cities have adopted: such as Palo Alto, 80% reduction in emissions by 2030; City of Adelaide, carbon neutral by 2025. Targets that are far and above, you know, more aggressive than the Paris Agreement. Cities are just saying that we’re not moving fast enough on climate change, and that it’s up to cities at this point to really step up and demonstrate to the world what can be done at a more grassroots and more community level.

MATHIAS STECK I saw on the report that you compare the cities on scales and how well they do. One was standing out, and that was Cambridge. They had very high scores on many dimensions, at least that I looked at. What did they get right?

BETTY SETO Each of the seven dimensions of the framework have five or six best practice indicators, and so that’s how the score is built up, from the best practice indicators. One of the key findings from the report is that cities today have been very active related to solar PV; and what Cambridge is doing, is moving beyond solar. That’s a trend that we are starting to see with these cities is “okay, we have been very successful with solar projects, both on our own municipal operations and also in our community, but what can we do that’s beyond that”. Cambridge has a micro grid project, they are promoting electric vehicles, they are looking at innovative funding streams.

It’s really around the package of actions that’s not just looking at their own buildings, but helping the community, and then also looking at the financing and also looking at the promise of new technologies associated with smart cities as well, and what can you do with data and fostering clean tech companies in the community. Those are some of the really leading edge actions that cities like Cambridge are taking.

MATHIAS STECK Okay. Which are the most important dimensions you would say, of the seven?

BETTY SETO Well, I don't think you can say that any single dimension is more important than the other, because they are all part of a holistic pie. Like you can’t do without financing, but you also can’t do without leadership and goal setting. You can’t just do supply side strategies. You also have to do the demand side and the energy use strategies. And finally, resilience, you also have to consider emergency preparedness, and how do you set up your city so that disaster response is something on everyone’s mind and that the city is prepared for. I would say you can’t select a more important dimension over another one, Mathias.

MATHIAS STECK Okay, fair enough. Let me talk about the global development of smart cities. I mean, well, it’s not only about smart cities. You are talking about the energy transformation, it’s quite closely related, I guess. What do you think about the opportunities for cities around the globe? Where do we see these trends happening faster? I know in your report you have looked at different cities around different regions, but where do you see the strongest development at the moment, and where do you expect that to move?

BETTY SETO It’s interesting that you bring up smart cities, because that was one of the surprising findings about the report and about our research, is how active cities are, related to smart city technology adoption. When we created the framework we thought of smart cities as an emerging area or maybe a buzzword, but what we found is that cities are very active in branding specific projects as smart city initiatives, promoting the clean technology companies, making data available to the citizens and to the community. Cities and municipalities are realizing they can’t do it all on their own. You have to empower your citizens and tap into the collective brain trust that’s available. What they are really seeking to do is engage the community in new ways and use data as a key engagement strategy.

MATHIAS STECK Betty, we had a chance to take about a few cities a little bit already. I would be interested if you could maybe, based on the US cities, you looked into Palo Alto or Santa Monica, and share in a bit more detail, what makes them successful, or where they are in the energy transition.

BETTY SETO One thing that makes these cities so successful is that they are able to articulate very ambitious goals, and that they engage their community in identifying the appropriate strategies and actions to achieving those goals. For example, city of Palo Alto, you know, they have an 80% emissions reduction by 2030 target, but it doesn't just end there. They also have sector specific goals, so to speak. For example, they have a target of 1.3 megawatts of solar installed on four parking garages. And actually last summer, they unveiled their latest solar PV system, and not only did they install PV, but they also installed 12 electric vehicle chargers. It was an opportunity to show that there is a significant innovation happening in combining distributed energy resources like solar with other electric vehicles. I think for them, they will be looking at other types of storage coming online as well.

It’s a very exciting time, and the other things that they are doing are related to setting new reach codes related to buildings. California already has very stringent energy codes for buildings, but Palo Alto is exploring how can we become a zero net energy buildings city and how do we ensure that all new buildings are zero net energy. They are taking piece by piece, and setting specific targets and specific goals to ensure that they achieve their overall emissions reduction targets.

MATHIAS STECK Right. Actually, when you say Palo Alto, they have all the fancy start-ups around them who could probably help them a lot in this transition.

BETTY SETO That is true.

MATHIAS STECK It might not be so easy for others. To get to this, what is the role of partnerships in there, because it’s probably not only the city who can decide we go forward now. They need partners.

BETTY SETO You know, that’s a really interesting point that you bring up related to Palo Alto specifically and being at the heart of the Silicon Valley. But I think that all cities have partnership opportunities like that, and that other players in the market should be looking at cities that have set ambitious targets, but perhaps don't know what to do. You know, Palo Alto is not the only city to have adopted such an ambitious goal. There are many other cities that have climate targets but don't know how they’re going to reach there. I encourage these other partners and players to look at the cities that are perhaps a little bit earlier in the energy transition, and see how they can bring their know-how because you have these so-called name brand cities, but there are many, many other cities out there that have similar ambition and similar potential. I think it’s about looking beyond the obvious city partners and perhaps looking at what are some initiatives happening at the state level that are trying to reach more cities, or even the federal level. This is where some of the work is actually happening in Europe, where the Europe Commission is so active in setting ambitious goals and programs. That has really been helping the European cities in leading the way related to energy ratings and energy use disclosure, and other best practices that we are seeing.

MATHIAS STECK Interesting aspect again linking it a little bit together also with smart cities. What we see there is that we predict at least, when a city manages very well to create a smart city environment which is sustainable from an economic point of view and offers the right quality of life, that can empower them, or they can become very powerful, mayors can become very powerful. This is certainly something that attracts them. The other side is those who are not successful probably suffer. So that leads us maybe to talking about risks in this whole matter. Have you figured out anything in your report where there are risk areas?

BETTY SETO I think for cities there are a lot of risks that they are trying to manage. It’s interesting because I think cities as a whole tend to be very risk averse. The leading cities are no different; and I think though it’s how do you manage that risk. Related to new technologies, the energy transition is about moving from the centralized fossil fuel based systems to more decentralized renewable clean energy systems. That also involves new energy technologies. I think for cities to move on the energy transition, they really need to weigh the risks of new technology and new business models and new revenue streams in terms of their investments. One local government that I was talking to a couple of weeks ago said “we are really interested in installing in and investing in battery storage, but we keep hearing how the cost of battery storage is falling so quickly, and we’re worried that if we invest today that the price will have fallen so much, and we will have locked ourselves into a costly kind of investment, or a costly business model”.

I think that’s what cities are really struggling with, is how do we tap into the potential of new technology, and yet new technology comes with risks. Risks with inoperability, risks with the financial stability of new companies. I don't actually have an easy answer. I don't have the solution to risk management, and the risk profile of different cities varies, depending on the leadership as well as the community. But those are certainly issues that cities are grappling with as they are trying to move forward as part of the energy transition.

MATHIAS STECK You mentioned financing already a little bit. How about the finance industry? Are they seeing cities already as an opportunity for investments, not only the banks, but maybe also equity investors and so on and so forth?

BETTY SETO Financing was a very interesting dimension. That was I think dimension six. While I was surprised that cities were very active on the smart city dimension, I was very surprised that they did not score very well on the financing dimension. And the best practices we had identified were basically financing strategies that have been around for a while. You know, power purchase agreements, green bonds, energy savings performance contracts, and then also property tax based strategies where instead of an on-bill payment, it’s like a property tax repayment for like a solar system or weatherization. Some of the tried and true strategies, we didn't find cities that we surveyed to be really using them.

Our conclusion is that they have been primarily paying for it out of their own operational budgets or maybe through grants and yet on the other hand, we’ve been hearing from investors that, “we’re hungry for sustainable projects, for green investing, for green bonds. We are looking for green and sustainable projects”, and here we have cities with an abundance of green projects that they want to do. I think it’s about tapping into that private capital, and it’s how do we make the city programs investible and attractive. That’s where we are seeing some initiatives related to standardizing energy efficiency projects, standardizing projects so that you can bundle them together and make them more attractive to the private capital. There is a lot of work that still needs to be done on that front.

MATHIAS STECK Yes. Another angle I just briefly would like to talk about, what about regulation being, well, a supporter of that manner, but also being a roadblock?

BETTY SETO There are regulations that do prevent cities from tapping into some of that funding. In the US we have property assessed clean energy. That is tying repayment of these renewable energy, like solar systems and even battery storage to your property tax, and it has to do with the way the mortgage is prioritized, like the lean on a property. Some of the biggest mortgage and biggest mortgage holding companies in the US actually sued to prevent these loans being tied to the property tax because they were afraid the property tax gets prioritized over the mortgage, and they didn't want these other loans to be prioritized for repayment over the primary mortgage. that was held up in the courts for years, and so, a workaround was to avoid properties that have a mortgage, but then that cuts out a very significant portion of buildings. that’s an example of where regulators could have stepped in and said okay, we are going to help clear this up and stronger regulation would help support cities in their thinking through some of these innovation financing strategies.

MATHIAS STECK Yes, interesting. Very down to the ground. Betty as a last question, a more personal one, you were working for cities like about 12 years now already?

BETTY SETO That’s right, for over a decade.

MATHIAS STECK What is it? What excites you so much about cities?

BETTY SETO I really enjoy working with cities because they are so collaborative and because they are so forward thinking. I am inspired by my city clients every day, by what they are trying to accomplish. They are trying to build quality of life, they are trying to support local economies, local jobs. At the end of the day, the municipalities I work with, they care about their citizens and they care about the local businesses, and they really care about environmental stewardship and bringing that all together. It comes from a place of caring and it comes from a place of environmental stewardship. I am just inspired on a daily basis by what cities are trying to accomplish.

MATHIAS STECK Very good. Thank you very much Betty for these interesting insights into the new report, which by the way you can download from our website Once again, thank you for your time, and thank you to the audience for listening in. That was Betty Seto, Head of Department Sustainable Buildings and Communities from DNV.

NARRATOR Thank you for listening to this DNV Talks Energy podcast. To hear more podcasts in the series, please visit dnv.com/talksenergy.