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Amsterdam as Smart City

Going Green Fast in Holland

By Mark Scott

With help from IBM, Cisco, Philips and other companies, the city's infrastructure is becoming ultra energy-efficient, attracting global attention.

Among Amsterdam's 17th century town houses and meandering canals, big changes are afoot. On Utrechtsestraat, a major shopping avenue in the center of the Dutch capital, street trash soon will be collected by nonpolluting electric trucks, while the electronic displays in local bus stops will be powered by small solar panels. Elsewhere, 500 households will pilot an energy-saving system from IBM and Cisco aimed at cutting electricity costs. An additional 728 homes will have access to financing from Dutch banks ING and Rabobank to buy everything from energy-saving light bulbs to ultra-efficient roof insulation.

The projects, all getting under way over the next few months, represent Amsterdam's initial steps toward making its infrastructure more eco-friendly. The move comes as governments worldwide set aside billions of dollars to create so-called "smart cities," or towns that mix renewable projects, next-generation energy efficiency, and government support to cut overall carbon dioxide footprints. Yet, unlike cities that could take decades to upgrade their infrastructure, Amsterdam aims to complete its first-round investments by 2012. That makes it one of the first and most ambitious adopters of the smart city concept, attracting attention from policymakers worldwide hoping to glean lessons from the green experiment.

Smart Grid Technology

All told, the municipality, energy outfits, and private companies are expected to invest more than $1 billion over the next three years. That figure includes a $383 million investment by local electricity network operator Alliander in so-called "smart grid" technology that uses network sensors and improved domestic energy monitoring to trim electricity use. Also part of the plan: up to $255 million to be spent by local housing cooperatives on boosting household energy efficiency, and $383 million from companies including Phillips and Dutch utility Nuon to be invested in other energy-efficient technology.

"In the next year and a half, we expect to be the leading smart city in Europe," says Ger Baron, senior project manager at the Amsterdam Innovation Motor, a public-private joint venture that is overseeing the project. "We're in the right place at the right time."

The focus on cutting cities' emissions could have a major impact on the battle against global warming. As of 2006, more people now live in urban areas than in the countryside, and the sprawl surrounding megacities such as Mumbai and Saõ Paolo is only likely to increase. Consultancy Accenture reckons cities produce almost two-thirds of total global carbon dioxide emissions through a combination of car fumes, household energy use, and industrial manufacturing. In the coming years, policy shifts from the US and elsewhere will put even more pressure on controlling carbon output.

"Until now, there's been an underemphasis on what cities can do to cut emissions," says Mark Spelman, Accenture's global head of strategy.

Cutting Household Energy Use

That's why Accenture has teamed up with utilities in North America, Europe, and Asia to figure out the best way to reduce cities' carbon dioxide emissions. In the first project -- a $100 million venture in Boulder, Colo., led by Xcel Energy -- some 60,000 households will be connected to a smart electric grid by June 2009. In early trials, households have been able to cut their energy output by as much as 50 percent thanks to real-time network monitoring and the installation of smart meters that let customers adjust their energy use by time of day or other factors.

In Amsterdam, city planners are taking things a step further. Dutch grid operator Alliander, which is 30 percent owned by the province that includes Amsterdam, will spend €100 million ($127 million) annually until 2016 to upgrade its entire network to a smart grid. That will include installing new meters in homes that detail consumer energy use and relay the data back to utilities. By 2011, says Paulus Agterberg, Alliander's director of strategy and innovation, almost all of Amsterdam will be on a smart grid. "You have to spend your money (on infrastructure) in the right way," he adds.

As the city's energy infrastructure gets a face-lift, local policymakers also are devising ways to maximize the new smart grid technology. On tap are a dozen projects, split across consumer and commercial markets, that will begin as pilots but are expected to ramp up over the next three years depending on their success. One plan will give 728 households in Amsterdam access to microfinancing to buy energy-efficient products for their homes. Once installed, the investment will be repaid through savings on households' utility bills.

"Banks see this as a huge business opportunity, but they're still not sure how big the market will be," says Amsterdam Innovation Motor's Baron.

IBM and Cisco's Home Energy Display Panels

Another project, in conjunction with IBM and Cisco, will involve installing energy display panels into 500 homes that convert data from smart meters into comprehensible info for customers. That will allow households to more easily monitor their electricity use, as well as permit companies to offer additional services, such as appliances that could be controlled from the central display panel or domestic power points for electric cars. Amsterdam Innovation Motor's Baron says 200,000 homes, or almost one-third of the city's housing units, will be using the technology by 2011.

"The scope of the Amsterdam project is more ambitious (than plans in the US)," says Jeff Taft, Accenture's global smart grid chief architect.

Ambitious yes, but Amsterdam's plans come with a hefty price tag. According to estimates, it will cost $410 per household over 15 years to install smart grid technology alone. Additional outlays, particularly the up-to-$255-million estimated to make the city's homes energy-efficient, could be a tough sell for consumers already suffering in the economic downturn.

Yet by converting Amsterdam into a smart city, local planners expect to bolster the economy through public and private investment, as well as cut emissions by 40 percent by 2025. Says Amsterdam Innovation Motor's Baron: "The aim is to create innovation."

Scott is a reporter in BusinessWeek's London bureau.