The UK has gone well beyond other countries with its greenhouse-gas targets, having committed to reducing carbon emissions by 34 per cent from 1990 to 2020. Last week, the Scottish Parliament voted for a 42 per cent cut. But our post-Kyoto experience shows that the world has been long on targets and short on action.

The UK’s task is complicated by the power crunch that will strike in the middle of the next decade, when a third of our existing electricity generation capacity will have become obsolete. New nuclear plants, renewables and carbon capture and storage will not fill that gap in time, leaving us dependent on gas.

If the supply of low-carbon energy is a challenge, we must place greater focus on demand. Here, smart grids will be crucial. Not only will they help to tap into distributed sources of renewable energy, they will also allow us to change consumption habits through the use of adjustable tariffs. And, by redistributing excess power from local generation or electric vehicles, smart grids will help to minimise energy waste.

In order to make the infrastructure a reality, the Government must face an inconvenient truth: under the rules of today’s market, there is no financial case for a utility to build a smart distribution grid in the UK. Indeed, in the Government’s price-control review, virtually no allowance is being made for smart grid investments up to 2015.

The most critical step we can take is to revise radically our utility and energy regulations, which are designed to encourage UK utilities to cut unit costs and prices in a competitive market. These incentives discourage R&D, innovation or long-term outlays in smart grids by preventing investors from making a reasonable return.

The second major step is for city authorities to take a leadership role. Uniquely, cities can pull together consumers and businesses associated with energy, transport and other services to form a coherent plan of action. For instance, only cities can bring together all the parties needed to make a mass rollout of electric vehicles financially viable.

And, because cities can make their own cost and environmental savings, the business case for smart grids can be transformed if utilities collaborate with city authorities. We calculate that a smart grid will cost approximately £290 per household for a large British city. Over 15 years, the private sector would face a deficit of £71 per household if it was to invest alone. But through collaboration with city authorities, that becomes a net benefit of £93.

The UK would do well to look abroad for inspiration. The City of Amsterdam aims to reduce emissions to 40 per cent of 1990 levels by 2025. It has just launched pilots for low-carbon initiatives that build on smart-grid thinking, from electric-powered canal barges to residential smart meters and plans for a virtual power plant that will connect hundreds of rooftop solar panels and wind turbines. The local distribution utility plans to roll out charging stations for 10,000 plug-in electric vehicles. By co-ordinating many parties, the city and its agencies have improved the financial appeal of the necessary investment.

In a country with few city mayors and limited city autonomy, the UK needs to work even harder to bring together private and public sectors at local level if we are to use smart infrastructure to help meet our ever more ambitious emissions targets.

• Omar Abbosh is managing director, Resources UK and Ireland, Accenture

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