"Smart Cities: Business Models, Technologies and Existing Projects"
The number of smart cities worldwide will quadruple within a 12-year period that started last year, proliferating as local governments work with the private sector to cope with a multitude of challenges confronting urban centers, according to a new report from IHS Technology (NYSE: IHS).
There will be at least 88 smart cities all over the world by 2025, up from 21 in 2013, based on the IHS definition of a smart city. While the combined Europe-Middle East-Africa (EMEA) region represented the largest number of smart cities last year, Asia-Pacific will take over the lead in 2025. In all, Asia-Pacific will account for 32 smart cities of the total in nine years’ time, Europe will have 31, and the Americas will contribute 25, as shown in Figure 1 attached.
“Smart cities encompass a broad range of different aspects, but IHS has narrowed the definition of the term to describe cities that have deployed—or are currently piloting—the integration of information, communications and technology (ICT) solutions across three or more different functional areas of a city,” said Lisa Arrowsmith, associate director for connectivity, smart homes and smart cities at IHS. “These functional areas include mobile and transport, energy and sustainability, physical infrastructure, governance, and safety and security.”
City projects in the Americas are typically somewhat narrower in scope than those found in Europe. Unlike broad projects underway in cities like Vienna or Amsterdam, U.S. projects will often focus on a single functional area, such as mobility and transport.
Meanwhile, many of the budget issues facing government expenditures in the well-developed economies of Europe are not found to the same extent in the Asia-Pacific region. In effect, this has the potential to create more scope for investment in smart city projects in Asia-Pacific, where projects are sometimes based around creating new infrastructure, rather than replacing legacy systems.
Under the smart city definition of IHS, annual investment on smart city projects reached slightly over $1 billion in 2013, but will go on to surpass $12 billion in 2025.
Why smart cities?
Smart cities are emerging in response to an increasingly urbanized world dealing with scarce resources, along with the desire to improve energy efficiency. By providing appropriate technologies and solutions, smart cities can deal with issues such as congestion and energy waste, while also allocating stressed resources more efficiently and helping to improve quality of life.
For instance, as an increasing proportion of the world’s populations live in cities—3.42 billion in urban areas vs. 3.451 billion in rural areas as of mid-2009, according to the United Nations—services such as public transportation, energy provision or the urban road network are inevitably strained. Smarter solutions can be deployed to lessen the negative effects of growing urbanization, including the use of sensors to monitor traffic, or the implementation of smarter ticketing solutions to improve the use of public transport.
Smart cities can also help achieve energy-efficient targets. London, for example, is retrofitting both residential and commercial buildings to lessen carbon dioxide emissions. The city is also adopting charging infrastructure to support the introduction of 100,000 electric vehicles.
For areas of the world where water is a scarce resource, smart cities can allocate this precious resource, using sensors to manage water use or provide critical information on water-storage levels. In Santander, Spain, soil-humidity sensors detect when land requires irrigating for more sustainable water use.
Smart cities also can provide other benefits. They can generate new employment opportunities through the creation of projects, prevent citizens from moving away by improving quality of life within their jurisdictions, and reduce costs. In the case of cost reduction, cities are discovering the benefits of light-emitting diodes (LED) in street lighting, an area that can take as much as 40 percent of a city’s energy budget.
Figuring out investment returns
When considering the long-term viability of smart city initiatives, it is important to assess not just direct revenue-generating opportunity but also the broader return on investment, Arrowsmith said. This has implications for both the public and private sectors collaborating on smart city projects.
Because cities continue to face budget constraints, quantifying the level of cost reduction that can come about must be a top priority. Here the obvious effects of cost savings and other benefits can be measured.
Just as significant, however, are the intangible benefits to be derived. If city denizens feel that smart cities improve their way of life, the likelihood of them leaving is reduced, helping the city maintain revenue through the taxes that are collected. Meanwhile, territories can attract new talent or businesses dazzled by the prospect of living in a smartly functioning city. Ultimately, the intentions of smart city projects—and the associated return on investment—will depend on the smart city technologies being put to use, IHS believes.
Various business models offer opportunities
Smart city projects are typically deployed via partnerships between the public and private sectors. The main business models include build-operate-transfer (BOT), build-operate-comply (BOC) and municipal-owned-deployment (MOD).
The most common model is BOT, where city planners work closely with an external private partner that, in turn, develops the services and deploys the necessary infrastructure. The third party is also responsible for the operation and continued management of the infrastructure, until such time when it is transferred back to the city.
The BOC and MOD models, in comparison, assign varying levels of responsibility in the building, operation or maintenance of smart city projects for the public and private sectors that are involved in those works.
IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs more than 8,000 people in 31 countries around the world.