‘Smart meters are useless in new finance model for cities’

Smart Cities, great, but who is going to pay? How can investments and benefits be shared equally among the different actors? Because of the complexity of Smart City initiatives and the great number of actors involved, there is no clear financial model for the cities of the future. However, what city officials and urban planners should consider, according to architect Thomas Rau, is to rethink the traditional economy based on ownership, and look at payment based on performance. An interview with managing partner Douwe Jan Joustra.

RAU’s office in Amsterdam does not possess any chair or lamp. For lighting the building, the agency signed a contract with Philips to deliver 1600 hours of 500 lux per workplace. The electronics company is responsible for both the delivery of the lamps and payment of the energy bill. This is a small example of a circular economy, in which the producers of goods remain the owners, instead of the users (the customers). With raw materials such as metals getting more and more expensive, it is increasingly important that these materials can be re-used (instead of being disposed), just as in the Cradle to Cradle concept.

If you translate this approach to entire cities; why would people still want to own a car? Or a house? What if project developers remain responsible for their buildings, including the energy performance; would this change the design of buildings?
‘With this approach, valuable materials do not only stay in the lifecycle’, says managing partner Douwe Jan Joustra, ‘this will also speed up innovation and increase efficiency. After all, producers remain responsible for efficient operations and running costs of their products.’ In fact, it is all about reconsidering responsibilities and interdependencies in a value chain.

With regard to energy efficiency, aren’t we just trying to increase user awareness? These views contradict the need for citizens involvement and responsibility.
Joustra: ‘The moral appeal to consumers to use less energy, is absolute nonsense. That is not going to make the difference. Energy in itself is not the problem; we are just not smart enough to fully harvest the abundance of solar energy. Smart meters are, in this respect, useless and only a postponement of the clash in our fossil fuel system.’

Cities spend millions of euros on the implementation of smart meters, and that process is already complex enough…
Joustra: ‘What I mean, is that the technology solutions of today are not the solutions of tomorrow. One great benefit of a circular economy, is that you get rid of the ‘split incentive’; the chicken-and-egg situation of why would I invest, when others in the value chain will benefit? Of course, this approach requires different kind of contracts and different finance models from banks. But in the end, the risks, including the financial risks, are better spread among the parties with the right knowledge.’

How will different parties benefit financially?
Joustra: ‘Producers gain from long-term relationships with their clients and long-term ownership over the materials they use. Cities can avoid millions of investments and they will benefit in terms of flexibility.
For example, the municipality of Brummen, in the Netherlands, is currently building their town hall based on performance of 20 years. They pay for the exploitation only. After 20 twenty years they can decide to keep the performance or to fully disassemble the building with no negative impact for the environment.


Tips for cities:
* Understand the true value of resources in your city first.
* Investigate the technology, process and system innovation in your city. Responsibilities are already changing. For example, more local initiatives are already taking place.
* Smart Cities should be creative. Why not use your solar panels on performance basis?


4 comments op “‘Smart meters are useless in new finance model for cities’”

  1. DANIEL WEISS says:

    Can you explain more on that issue, please email me.

    With regard to energy efficiency, aren’t we just trying to increase user awareness? These views contradict the need for citizens involvement and responsibility.
    Joustra: ‘The moral appeal to consumers to use less energy, is absolute nonsense.

    • Heidy van Beurden says:

      Hello Daniel,

      Depending on your questions, I think it is important to read Joustra’s quotes in the context of the broader energy challenge. User awareness alone will just not be enough, while there is a strong tendency to focus on (quick) technology solutions that place consumer behaviour in the middle of all. Ofcourse, user awareness is important. But are we able to look at the bigger picture and alternative solutions at the same time?

  2. Saibal says:

    Hello Daniel,

    In principle, I agree with Joustra’s quotes. We are applying these ideas in real in pilot projects with some early success. While technology plays an important role , we have been spending most of our time and brains in generating business models around that “circular economy” concept. Luck is a bit on our side as we were able to pick a single (asset) owner city – this makes applying performance contracting simpler from contractual and legal perspectives. Currently it is being done for energy and we are working on similar model for other services.

  3. Paul s says:

    So I owuld commit to an energy supplier to provide sufficient energy to my home and how they provide it is up to them. If they decide that it is efficient to install PV on my roof and a wind turbine in my garden, them they do it and own it. It’s an extension of the UK Solar PV “rent a roof” schemes I suppose.