Pre-fab saves the day

By Jonathan

Our discussion on BSB’s audacious efforts to revolutionize the high-rise industry initially struck me as odd. The world’s tallest skyscrapers were some of the most glamorous buildings on the planet, housing luxury hotels, high-end housing, and sophisticated businesses. Why would those tenants settle for a drab, boring, low-end pre-fab building? But our case highlighted that there were many advantages to pre-fabricated construction, and I came to the realization that I was deeply and unfairly biased against pre-fab construction methods. Every other industry does some sort of pre-fabrication. My car, my clothes, my electronics – all are prefabricated, reducing the price, increasing the quality, and increasing my satisfaction as a user. Why should the construction industry be any different? Continue reading

Implementing Residential Energy Efficiency Solutions in Cape Town

By Anonymous

As a complement to our class on Energy Efficiency solutions in US Commercial Real Estate, I thought I would share my experience of working with a residential energy efficiency solution provider in Cape Town, South Africa. We worked on a consulting assignment with a start-up looking to introduce energy efficiency solutions (smart metering and energy auditing services) in Cape Town and came across a number of issues – some of which are similar to our discussion in class while others that were more specific to Cape Town but can be generalized to other developing cities.  Continue reading

Collaborative Consumption: Un-settling the situation

By Brett

I recently attended an excellent presentation by Robin Chase, the founder of ZipCar[1], in which she described the early obstacles to implementing ZipCar in the US.[2] In this post I will focus on Professor Macomber’s Framework #3 and argue that the innovation of collaborative consumption is that it blurs or ‘moves’ situations within the matrix framed. Zipcar used a new business model specifically to unsettle the transit situation in the US, thus creating an investment opportunity.

Chase explained how the settled systems of hard and soft infrastructure—including zoning, parking, and wireless technology—stood in the way of effective collaborative consumption of rental cars. For example, ‘normal’ (non-ZipCar) renters are charged a small tax (~$10) by the state for every rental.[3] An additional $10 fee for every single Zipcar use would have been a serious blow to Chase’s business plan. Instead (with the help of a good lawyer) Zipcar builds one $10 fee into the annual membership for Massachusetts users and every subsequent use is part of the same initial rental. As this example shows, entrenched interests had settled the system in favor of their own designs and ZipCar had to disrupt the infrastructure to create a viable market for its product. 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.


The “smart” way to get energy efficiency right

By Lefteris Charalambous

Similarly to other goods discussed through our cases, electric power has also been challenged by the global trends of urbanization and sustainability. Generation is having difficulties in meeting the rapid increase in demand, especially taking into consideration environmental and social concerns. Although energy efficiency seems to have great potential in dealing with this issue, it has not really taken-off. I strongly believe that the development of “smart” infrastructure is one of the key elements to help spread energy efficiency measures.

As energy efficiency I define all measures implemented in buildings and vehicles in order to minimize demand amounts and optimize demand patterns (minimize peak, smoothen demand curves). Energy efficiency seems to be an easy way to meet increased demand without developing new capacity and having to deal with the resulting environmental issues. In this spirit, energy efficiency measures are always in the first part of the GHG abatement cost curves developed, with positive NPV projects [1].

In my opinion, there are two main challenges holding us back from yielding the full potential of energy efficiency.

Firstly, the structure of the current energy efficiency industry is very fragmented and modular making the development of integrated solution difficult. Many players (governments, energy regulators, energy service companies, contractors, engineers, software companies, equipment manufacturers etc.) are involved in energy efficiency making coordination, communication to the public and development of standards very difficult. Furthermore, the uncertainty and sometimes lack of focus of the continuous evolving regulatory framework drives opportunistic rather than strategic actions in the industry.

Secondly, the industry players have not been able to communicate the value of energy efficiency to the majority of the consumers. Most of the potential is found in existing, small residential buildings. Residential clients seem to be much more reluctant to make changes in their existing structures without clear benefits and guidance through the implementation. The industry players have not been able to deal with these issues and have been focusing almost exclusively on large commercial clients. Some countries are using enforcement through standards and subsidies (e.g. in Germany) that can be expensive for the government and result in inefficiencies (e.g. reduced completion).

“Smart” technologies can act as enablers to deal with the above challenges and create integrated energy efficiency solutions that will deliver the expected savings. The development of a smart grid and infrastructure can create a platform with common standards for all players involved (similarly to a common operating system), facilitating the integration of the currently modular and many times incompatible parts. Moreover, the interactive aspect of smart technologies can help the consumer understand, measure and manage savings. Hence the value is communicated, measured and realized in a very tangible way. Finally the data collected can help players in the industry further understand consumer demand and behavioral and develop relevant products.

An important open question is who will develop and benefit from this “smart” infrastructure. Is this the new role of utilities or previously irrelevant players will dominate this market (e.g. software companies)? How will the government regulate this new domain?


[1] Road towards a low carbon future: Global GHG Abatement cost curve, McKinsey & Company, 2009