Devising New Financing Strategies to Accelerate Smart Cities Projects

Smart City

Smart cities, the smart framework, significantly composed of Information and Communication Technologies (ICT), are designed to develop, deploy and drive sustainable developments for growing urbanization challenges worldwide. A smart city typically uses IoT, smart and connected devices to connect and improve infrastructure, convenience, quality of life for residents and deliver overall efficiency. Leveraging technology intends to augment connectivity at various levels among citizens as well as between the administration and population. However, the development of a smart city requires large investments by the government.

According to reports, it is estimated that India loses US$21 billion annually due to fuel wastage caused by traffic jams and improper roads. Several people across the country also choose to commute by private transport of crowded or unavailable public transport facilities. Thus, in this way, a centralized server-based on real-time data streams can determine how to source the public transport system efficiently. For instance, leveraging connected traffic lights that receive data from sensors and cars adjusting light cadence and timing can help respond to real-time traffic, thereby lessening road congestion.

In a report entitled ‘The Challenge of Paying for Smart City Projects’, Deloitte says “As cities look to upgrade their infrastructure with smart technologies, paying for those projects presents a significant challenge of introducing smart technologies on a wide-scale basis. Constrained by tight budgets, cities need to identify business models that can help to attract private financing in order to make the introduction viable and financeable.”

Earlier, cities have paid for large infrastructure projects, either with city funds raised via taxes or with capital acquired in the municipal bond market. But no one such approaches hold much promise for smart city financing. Generally, there is little appetite for tax increases but few numbers of municipalities use property taxes to fund smart initiatives. There are many factors restraining to finance smart city projects. One such common hindrance is deploying technology as it could reduce investor confidence in the integration and usability of the technology in the absence of demonstrable proof of concept. It may also be hard to secure financing for a smart city project where it is complicated to monetize the benefits of the project.

Meanwhile, a private-public partnership approach known as performance-based contracting where a commercial vendor installs and executes a smart city solution at their own expense, then shares in the savings the city experiences, as a result, would be effective. 

Developing an inclusive strategic plan to take advantage of a smart city project’s strong points can be a major key step towards financing effort. This could assist in improving the project’s investment readiness and its access to finance. Moreover, the market of smart cities is a tech- and industry-driven which must move to a city-needs-led and demand-driven model. This needs a greater collaboration between cities and industry partners that can bring a comprehensive strategic plan that clearly communicates the opportunity and presents a robust business model. Also, this will open opportunities for investors to drive the growth of smart cities market with innovative financing structures.