In the news: Urbanization, Resource Scarcity, Cities, and Political Stalemates

(Updated March 35)

By John Macomber

Once you start tying phenomena together, the topics of our course are in the news everywhere. As we head into the last days of the Q3 term, here are a smattering just from the last week or two. It would be plausible to spring from these into an original post that applies some analysis or frameworks or segmentation to add the “so what” utility. Continue reading

Smaller, Cheaper Everywhere

By Jonah Wagner

Cities benefit from economies of scope and scale which tend to make them more ‘efficient’ places to live. In most countries around the world, it is ‘greener’ to live in a city than outside of it.[1] Home and work are closer together, reducing transportation time and cost. Population density also allows for the development of large, centralized, public utility infrastructure – lowering costs for energy generation and transmission, water purification and distribution, waste collection and management, etc. Historically, these utilities have benefitted significantly from scale.

Example: Water purification costs by plant size[2]

This may be changing. New technologies (e.g., remote sensors) are making possible the coordination of modular, scalable, decentralized systems of public service delivery in cities. Continue reading

So Are These New Cities Worth Anything?

By Jane

In every class conversation we’ve had about greenfield developments, from PlanIT to Masdar to KAEC, someone has made the comment that these cities are interesting as a laboratory or experiment. Implicit in those comments is the assumption that the project is likely to be a financial flop, but maybe something useful for society can come out of it. The prospect of a more urbanized, resource-constrained future may argue for more laboratories… but given the reality of a resource-constrained present, project sponsors probably care about making money. Or at least not losing too much money in the name of science.

Through an independent project with Professor Macomber, I am developing a template for a financial model that approaches new city projects from the perspective of an omniscient developer [omniscient heremeaning a) all-knowing, b) interested in optimizing the system and c) the sole source of capital, for simplicity-John].

The template simplifies unique projects into four value drivers comprised of development, operations, demand (i.e. rent and tariffs) and taxes. Additionally there is the option to run a “sustainability case” which compares traditional development with an alternative plan based on different zoning, building quality choices, more efficient transit or water, construction costs, resource inputs, etc. that may cost more upfront but are presumed to have long-term benefits. The objective for this template is threefold: to assist investors in their financial-decision making with respect to greenfield cities, to assist students in comparing different projects, and to assist governments and other interested parties in assessing the value—if any—of sustainability measures at the city scale in new cities. Continue reading

Time to Rethink the Urban Freeway

By Kevin McDonald

The limited-access highway has deemed by planners, environmentalists and much of the public at-large to be an unsustainable urban form of transportation. The unsustainability is driven by three elements of this facility: 1) non-renewable gasoline to power automobiles that use the highway, 2) the noise, disruption and pollution created by the automobile’s engine and operations, 3) energy-intensive forms of the built environment.  These key issues are juxtaposed against the indelible strength of the limited-access highway: point-to-point transportation that efficiently and quickly delivers goods and people.  In the US, those arguing against the sustainability of the urban freeway appear to have the day- the country has only added 2% to its 1980 levels of urban mileage. Recent technology innovations have mitigated the negative externalities of the urban freeway. This begs the question: is it time to rethink opposition to new investments in urban highway lane miles? Continue reading

Sensors and the City

By Julia DeIuliis

While the definition of “smart city” is constantly in flux, one common feature of smart city applications and initiatives is the use of sensors in infrastructure projects. Yet, despite calls for joint financing, a study by Alcatel-Lucent showed that most smart city projects are financed either by governments, government run development funds, or research grants. This blog post proposes different business models for engaging the private sector in financing sensor-enabled infrastructure.

Sensors provide several financial benefits across multiple categories of infrastructure projects:

  • Improved data collection enables variable pricing (e.g. charging more for transportation, energy, or toll roads at high usage times) and allows for more efficient resource allocation and planning, by having a more accurate idea of where more resources are needed.
  • Passive sensing allows the operators of public services to spend less human resources on inspection activities, and more on repair and corrective actions. Savings apply to both routine maintenance- for example, alerts to empty a trash can instead of manual inspection- and large scale asset protection, such as monitoring damage to bridges before a significant structural repair is necessary. Sunderland, a UK city, estimated that transitioning to cloud-based IT would save £1.4M per year in IT costs alone. For large scale prevention, FEMA estimates that every $1 spent on preventative measures saved $3.65 in repair costs.
  • Proactive sensing lowers the long term operating cost of a building, by enabling operators to remotely reduce the demand for energy when a building is unoccupied, turning off outlets when not in use, and decreasing the need for security guards and maintenance staff. One meta-analysis showed that occupancy based controls reduced lighting costs 24% in commercial buildings, while EnergyStar estimates that a programmable thermostat has a lifetime packback of 20x the initial investment.

Sensors also provide a large amount of data that can be repackaged and monetized. For example, traffic volumes in retail areas could be sold to retailers, helping them to compare the foot traffic of different geographic areas, as well as compare their foot traffic with the average for their category.

In addition to the sensor provider, three private sector entities benefit directly financially from sensor applications:

  1. Building developers: building operators would pay more for a sensor-enabled building, which costs less to operate, increasing the asset value.
  2. Utility or service operators could spend less on inspections and charge more at peak times.
  3. Insurance companies would face a lower risk of covering catastrophic damage if sensors were in place.

Of course, these projects still require upfront investment, while many of the financial savings come over time. Like other infrastructure projects, pension funds, private equity funds, and other long term investment institutions could be good financing partners.

Additionally, unlike other elements of infrastructure projects, sensors have a relatively low upfront hardware cost, although installation and setup do carry some costs. Providers of sensor based services should lower upfront costs, and charge higher costs on long term software and service subscriptions.

For governments to provide additional incentives, without directly incurring costs, standards for sensor based buildings should become the baseline for future contracts. For example, since occupancy sensors decrease demand, each utility company should be expected to increase the number of customers they serve with the same asset base. Additionally, contracting out more basic public services, such as sanitation, would allow the private sector to finance more of the investment.

With these actions, sensor-based smart city initiatives can be some of the most profitable and attractive to private investment. For cities trying to figure out what it means to be “smart” and how they should begin to do so, these initiatives should be prioritized above other initiatives that simply focus on openness and transparency within the public sector.