BRUSSELS (Reuters) - In the city of the future, could power suppliers be rivaled by construction firms? An embryonic movement is growing in Europe to build “smart cities” that will challenge the status quo.

Solar panels are seen atop the roofs of the Nokia Theatre and Staples Center at the L.A. Live entertainment district in downtown Los Angeles in this October 23, 2008 file photo. REUTERS/Fred Prouser/Files

The vision is fueled by the fear of climate change and the need to find green alternatives to dirty coal, unpopular nuclear power and unreliable gas imports from Russia.

Such cities would become self-contained units, their buildings gleaning energy from the powerful weather systems sweeping across their roofs and feeding it down to homes below and vehicles in the streets.

Electric cars in the garages would double up as battery packs for when energy supplies are scarce. Every scrap of waste food, garden trimmings and even sewage would be used to ferment gas.

Facing up to the end of their traditional business model, utilities are mapping a long-term survival strategy.

“A very different business model will emerge over time,” said Gearoid Lane, managing director of British Gas New Energy, the UK utility’s green division. “If any energy company ignores the long-term impact on future fossil-fuel backed energy sales, they will be in for a shock.”

The idea of self-sufficient cities is gaining currency in the European Union, which has set itself the ambitious task of cutting carbon dioxide (CO2) emissions to a fifth below 1990 levels by 2020 -- the biggest cuts anywhere in the world.

“In 25 years from now, millions of buildings...will be constructed to serve as both ‘power plants’ and habitats,” says writer and economist Jeremy Rifkin, who has advised governments and corporations on tackling climate change and energy security.

At the hub of the system would be a “smart electricity grid” that allows electricity to flow where it is needed most and dissipates the energy spikes as weather systems sweep through.

“The more fluctuating energy you have from renewables, the more it makes sense to have a smart grid,” Markus Ewert from the new technologies team of German utility E.ON told Reuters. “It would help stabilize the energy flows, so you don’t come up against the limits of the grid.

“Electric vehicles could be connected to the grid and could store energy at times when too much is produced -- and they could feed it back into the grid when there’s not enough.”

SUSPICION

While utilities such as E.ON are looking for opportunities, there is also strong suspicion that others are trying to preserve their vested interests and slow the pace of change in Brussels, the main driver of European climate regulation.

That was fueled last month when a plan to put 500 million euros ($645.5 million) into researching smart cities was scrapped.

“It’s stunning that funding was kicked out, and it’s pretty clear the big electricity utilities were not innocent,” said Green party member Claude Turmes who last year helped draft EU green energy policy.

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“Their influence on policy-making is tremendous,” he added.

The reason the funding was dropped is not clear, but the challenge facing Europe’s big power generators is obvious -- insulating or rebuilding Europe’s rickety housing stock could cut heating bills any where between 30 and 80 percent, which would slash demand for their product.

Not only would smart cities slowly reduce energy needs, they would also start producing their own over time.

Much of the technology needed is still a distant dream -- but not all of it.

French construction company Bouygues is working on an office in Meudon, western Paris, which uses 4,000 square meters of solar panels to meet not only its own energy needs but also to export surplus energy back to the power grid.

“We have entered an era of breakthroughs and of a technological revolution in the construction sector,” said Eric Mazoyer, deputy managing director of Bouygues Immobilier.

“Because tenants will pay 60 percent less in electricity bills, we can charge higher rents and we will sell the surplus of electricity back to (French utility) EDF,” he added.

OUTSIDE THE BOX

Myriad other examples exist throughout Europe, but at the heart of the plan is the philosophy that energy, ideas and enthusiasm are most easily shared in densely populated areas.

“Cities are a perfect for promoting change and renewable energies,” said the politician, Turmes. “Cities can serve as innovation platforms, creating clusters of businesses around green energy, and they control urban planning and parking slots, so they can promote electric transport systems.”

Environmentalists see another advantage to local entities -- they have a degree of autonomy beyond the reach of federal government and can often make tough decisions: for example, California’s climate goals and London’s congestion charging.

This week, the mayors and deputies of more than 300 mainly European cities are due in Brussels to sign a covenant pledging to cut their cities’ greenhouse gas emissions above and beyond the EU targets.

“It’s a very new way of doing things,” said Gerard Magnin of Energie-Cites, a group of green local authorities. “It’s about giving power to society, so society can put pressure on the institutions. By demonstrating people are ready for change, the cities will help the governments.”

European Energy Commissioner Andris Piebalgs estimates the cities involved will together save $10 billion a year in fuel.

So how do energy companies cope with such upheaval?

Much can be learned from other sectors undergoing similar revolution, such as telecoms which suddenly hit fierce competition from cable and internet providers, or the music industry which is struggling to cope with digital MP3 uploads.

“The MP3 was the first open platform that the music industry couldn’t control,” said Tim Hole of Audio Authority Management, a London music manager who is trying to keep pace with change.

“It took a company from a completely different sector to step in and take control of things -- Apple coming from the computer industry to deliver iTunes and the iPod,” he added. “You may see that start to happen in the energy sector.”

“To survive, you have to get closer to your customers, so you can keep up with their changing expectations,” he added.

Many in the energy sector already expect their new rivals to be constructors or property developers like Bouygues.

“We have had some interesting discussions with developers,” said Lane of British Gas. “Whether they will develop the expertise in-house, or work in partnerships with energy companies remains to be seen.”

“We have 10,000 engineers out there every day, installing and servicing boilers,” he added. “There’s a relationship of trust already. That model will become more and more valuable when it comes to selling renewables and microgeneration.”

E.ON’s Ewert says one winning technology could be biogas, which can be fermented from farm and domestic waste or even sewage and then be piped through existing gas networks.

“Biogas can be produced at a much smaller scale than natural gas, and without such huge investments,” he said. “From our point of view it makes absolute sense to feed the biogas into the gas grid. The infrastructure is already there.”

Rejecting suggestions utilities are slowing progress, he pointed to the Swedish city of Malmo, where E.ON already provides a cluster of 1,500 homes with renewable energy and Masdar City in Abu Dhabi where it is also involved.

“We want to understand where are the opportunities in smart cities and where are the limits,” he said.