Private Industry Has a Role to Play in Developing Smart Cities

Private industry, seeing the potential for new revenue streams and aiming to capitalize on consumer’s interest in all things digital, is eyeing opportunities to engage and collaborate with city decision-makers on smart city initiatives. Cities, in turn, recognize the need to improve their health, safety and economic welfare. Increasingly, more examples are arising on partnerships between private companies and municipalities on developing ways to make cities more livable, sustainable and resilient.

“One of those fundamental questions facing both municipal governments and utility leaders is how does a networked city engage its citizens and help private industry thrive?” said Rick Azer, Director of Development for Black & Veatch’s Smart Integrated Infrastructure service line. “Leaders are trying to create environments where investments in smart infrastructure, transportation and public safety serve as incentives for job creation and growth.”

Azer noted that the trend toward increased urbanization has put pressure on municipalities around the world to provide robust infrastructure to support growing demand for housing, municipal services and efficient transportation. Communities also seek solutions to quality of life concerns such as reliable water and power, and increasingly, broadband access.

The promise of utility interconnectivity, data sharing and analysis can be a solution to these challenges. Supporting that premise, Black & Veatch’s 2015 Strategic Directions: Smart Utilities report showed that 65 percent of initiatives currently being implemented are for a smart electric grid.

“The smart utility, aided by the civic objectives of renewable integration and ubiquitous communication networks, serves as a foundational element to smart cities,” Azer said.

Private Industry Involvement with Smart Cities

Universities and technology companies, such as Amazon, Google and Tesla, are building entire businesses that leverage and extend infrastructure built by utilities and regulated by local and federal entities.

“These entities thrive by layering innovative technology advancements onto existing services and continue to push the boundaries of smart infrastructure,” Azer said. “They are taking their energy destiny into their own hands, complementing utility-fed power with net-zero initiatives that include on-site renewable generation, microgrids, energy efficiency programs and investments in carbon reduction projects.”

Azer said these entities are finding that these steps are not only good for the environment, they are good for their business as well. Cities are watching closely and looking to mirror best practices.

But finding the funding for these initiatives within the public domain can be a challenge. It is important to note that there is no “one size fits all” plan to address funding needs. One solution is financing through public private partnerships. For example, Kansas City, Mo., has collaborated with technology company Cisco, which will deliver several phases of smart city programs, Azer said.

Another option is via grant-based pilots. The University of Chicago and Argonne National Laboratory are currently partnering to collect data from sensors placed throughout the city. The City of Chicago has also defrayed costs for other initiatives by relying on open source software to build out its data platform.

Other cities have created plans using a mix of bond measures and government subsidies. Energy savings from initial undertakings, such as light emitting diode (LED) streetlight retrofits, can serve as budget to finance subsequent phases of smart city development, Azer said. LED lighting retrofits can provide superior coverage with 50 percent energy savings, even more if networked adaptive lighting controls are implemented.

Perception Is Everything

One issue that arose from respondents to the Black & Veatch report addressed the perceived competition regarding who is best served by these initiatives. Survey respondents overwhelmingly believe that commercial entities benefit most from municipal-wide smart city initiatives. When asked which city agencies would benefit most from smart city initiatives, most respondents cited electric utilities.

“Many smart city initiatives begin as extensions from electric utility initiatives. Clearly, there is work to do to better communicate the value proposition these services bring to commercial enterprises and city residents,” Azer said.

Azer said that with commercial interests already assumed by some to be in conflict with city agency priorities, ascertaining who foots the bill becomes an additional concern. Effectively communicating those opportunities to stakeholders is a key step in mitigating perception and cost issues. Advocacy from city leaders and persistent community outreach are also important ingredients to moving solutions forward. But for private sector participation, there must be the potential for viable economic return.

“For retail or manufacturing businesses, an attractive return on investment includes energy efficiency gains, because a lower electric bill reduces operations costs,” Azer said. He also noted that universities and shopping centers could prioritize Wi-Fi access and issue targeted commercial notifications.

While improved services may be a selling point for the public, their concerns about privacy will also have to be addressed, Azer noted.

Mega-City Applications

New York City might be one of the most visible examples of a smart city vision being customized to meet the needs of its business stakeholders. Among flagship projects that showcase this approach to planning is an initiative underway by CityBridge, a consortium of public companies. CityBridge has a program to replace more than 6,400 payphones with smart kiosks that provide free municipal WiFi and other public services, all funded by advertising displayed as digital signage on the kiosks.

This alternative revenue source therefore serves as a funding mechanism as well. The return of investment for businesses includes advertising revenue derived from digital signage. For the municipality, an increase in awareness of public safety issues, along with quality of life benefits for city residents, appear to be markers of success. These new elements serve as a backbone of foundational infrastructure for expanded applications and services.

“The private investment in these systems can blur the distinction between public and private contribution in the emerging smart city,” Azer said.

Business and cities alike are also closely watching Hong Kong’s Wise City scheme, eager to benefit from lessons learned from an innovative early adopter. Where the business and investment community takes the lead on smart city planning, successful cases show the private entity willing to engage in funding roles.

Successful privately backed infrastructure projects can bring a steady return on investment for many years.

“Sustainable progress attracts additional sources of financing, further enhancing the region,” Azer pointed out. “Both cities and residents realize value from these services and technologies, which leverages private entities for public benefit.” 

Organizations such as Cleantech San Diego, the Smart Cities Council and the Top 100 Resilient Cities now have members from a wide variety of stakeholder groups, from established corporate companies to fresh, lean start-ups. These groups incorporate a best-practice approach to ensure that the needs of their stakeholders are met.

“These organizations facilitate collaboration across a public, private and academic membership to encourage investment in smart city infrastructure and related sustainability initiatives,” Azer said. “Black & Veatch partners with select organizations in order to advance the collaborative dialogue.”

Subject Matter Expert
Rick Azer: AzerRE@bv.com 

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