Smart city spending to reach $20 billion by 2020

Smart city spending to reach $20 billion by 2020

As more and more people flock to urban centers, the idea of smart cities has increasingly captured the mind share of civic leaders and planners around the world.

Consider that cities already are responsible for approximately 70 percent of global energy consumption and greenhouse gas emissions, according to some estimates, and you can see why city planners are scrambling for some semblance of control.

"City leaders face the continuous challenge of meeting rising citizen expectations within tight financial constraints," according to a smart cities report that Pike Research released in February. "In North America and Europe in particular, the tough economic climate is forcing local governments to become even more innovative in their use of technology to drive down operational costs and in the way services are procured and delivered."

The challenges are only expected to grow: In just 12 years' time, there will be more than 37 megacities globally that support populations of more than 10 million  22 of them will be located in Asia, Pike predicts. And by 2050, the number of city dwellers is projected to reach 6.3 billion, compared with approximately 3.6 billion today.

Pike defines a smart city as one that has integrated "technology into a strategic approach to sustainability, citizen well-being and economic development." Five "industries" are integral to that vision: smart energy, smart water, smart transportation, smart buildings and smart government.

And while there has been progress  including plenty of spending on smart city technologies, as well as discussions about what the model smart city should look like  there is no one city today that embodies all of those systems or characteristics, said Eric Woods, the research director in charge of the report.

"Each city has to respond to its own unique environment and will be smart in its own way," he said. "You have to see smart as an aspirational concept."

Transportation drives most growth

That said, much of the early smart city spending currently centers on spurring multimodal transportation policies, partly because it's easier for city governments to control investments in these areas, Woods said.

"Transportation is close to the heart of the definition of the city structure," he said.

Pike estimates that spending on smart transportation solutions, such as intelligent traffic-management systems or infrastructure that links electric vehicle charging infrastructure with other transit options, will reach $5.5 billion annually by 2020. That would represent a compound annual growth rate of 19.5 percent between 2012 and 2020.

When asked about examples of smart transportation solutions that are leading the way, Woods points to three cities: Stockholm, London and Singapore, which have all invested in smart toll technologies and sensor systems that help relieve traffic congestion.

Mobile applications that enable citizens to share information on their own, such as the one offered by Recyclebank and Transport for London, could also be instrumental, in part because they require minimal investment on the part of city governments, Woods said.

The key: Unlock public-private financing

Many smart city experiments going on right now could politely be described as pilot deployments, especially in the United States, where many were inspired by the stimulus funding under the American Recovery and Reinvestment Act of 2009.

In order for smart city systems to be widely deployed, local governments need to get far more creative about forcing public-private partnerships that share both the risks and rewards. Many will resemble the energy savings performance contracts that have been used to driving building energy efficiency projects, such as the one underpinning London's RE:FIT public-building retrofit program, according to Woods.

"Partnerships like this will be most attractive in North America and Europe, where things need to be self-funded," he said.

In Asia, on the other hand, smart city technology investments often are more likely to be considered along with other publicly funded infrastructure upgrades.

Here are three other factors that will be instrumental in smart city technology adoption, according to the Pike report:

  • Holistic view: Smart city systems must be considered with the context of a city's entire operations infrastructure. Isolated developments will have a limited impact.
  • Citizen engagement: Many pilot programs have overlooked the public's role in design, which could be a recipe for disaster when they are deployed more broadly.
  • Collaboration: Chances are there will be more than one stakeholder in any given smart city project. That could mean supporting the agendas of local governments, international development agencies, local businesses and other organizations.

Image of modern city on a tablet by Georgejmclittle via Shutterstock.