Business models & financing for smart cities

24/04/2018

Interview with Graham Colclough, Sharing Cities Work Package 7 - Business models & financing for smart cities
 
  • What are the main tools you will be using to develop the fundable business models? 


Cities are viewed by many investors as ‘too small, too slow, and too risky’. Whether that’s considered fair and accurate is not the issue. It’s their perception – their reality!
Yet cities collectively present an utterly massive market!

Fundable business models will find the right balance between (expensive) bespoke, and ‘one-size-fits-all’. They will seek to hit the optimal point in the economy of scale curve.
And that’s what we seek to do through collaboration – which can condition needs around a design that is more likely to change perceptions, and deliver a better-quality outcome faster, and hopefully with better value (and lower price) as a result.

Collaboration has a spectrum of outcomes – from demand aggregation (i.e. cities grouping their needs and approaching the market together under one procurement) through framework terms, or joint market engagement, and common and inter-operable design specifications.

Think Lego. It’s dependable. It’s good value. It’s interoperable. It enables multiple things to be built with the same components. And it comes with instructions and a picture on the lid of the box. I’m not suggesting we build cities entirely that way. What I am suggesting however is that embracing that metaphor will open doors to better service outcomes.

Packaging of our measures helps this. It speeds our internal ways of working; and it brings consistency and familiarity to all. Packaging is not just a technical (or business model) topic; it draws together the thinking across the programme – what societal needs we’re addressing through a particular measure; what technical solution or options are proposed; and what business models and financing mechanisms best fit.  This can help cities accelerate through the quite lengthy pre-procurement idea-to-decision process, by adopting a trusted lid-of-the-box solution. And we cannot forget the role that standards development organisations play here either. We are instrumental in this process also; working with standards bodies and the EIP-SCC to develop trusted guidance that can help build confidence in the market.

Cities are under intensifying budget pressures, and that won’t go away. So public money will just get tighter and tighter. We will need to engage new investor types, and come up with innovative financing and funding means (that will also by the way involve society as part of that value chain). Investors must have confidence to invest, and if they do they offer better terms.
So by using the instruments of packaging; by applying a process that engages the different investor types earlier so their confidence can be built, so their innovative ideas can be incorporated, we will get things far more right!

  • What challenges do you see with making sure that the demonstrators can become sustainable, financially viable and scalable?

Most challenges are human in nature – the desire to not change. The comfort with the way it’s always been. Be that within the programme itself, or out there in the cities, the investors, the industry suppliers, or society.
Procurement is often tabled as a challenge. I’m not sure I agree. Yes, it can constrain; and we can innovate in procurement processes. However, it is also there for many very good reasons. And in the overall life of a project from the first idea to its end of life, procurement represents a very small portion of its lifetime. We shouldn’t hide behind this as an excuse. We just need to work with it.

There must be a clear route to value for any investment to work. Cities are not the best at demonstrating and monitoring value. That’s because city systems are so intricate and interdependent; and because public value comes in many flavours and changes over time. What is the value of better health in 10 years’ time through cleaner air, and how do I prove that? What is the cost to mitigate – and more importantly how do I prove that too?! Add to that the silos, the capacity and time constraints, and data challenges that cities must live with; and the challenges of demonstrating to an (external) investor that there is a clear (financial) returns stream and the challenges become clearer.

That is where aggregation can play an important role, as it can spread risk; it can bundle lower or harder to justify investments with more solid (financial) ones. Take for example an urban platform (which enables value) and a smart lamp post (that delivers a solid RoI). One without the other is limiting. Both together can more clearly demonstrate value. This can be done within a city, or through creation of funds that span cities – of importance to the smaller (potentially perceived riskier) cities; that too often lack the opportunity to access finance.

  • Can you talk about the “Measure Business Model Workshops”, what is the purpose of these and how successful are these at bringing cities and industry together to explore collaborative actions?


The idea here is to bring the physical (i.e. technical options and design), the human (i.e. societal needs and tools to engage society around a measure), and the business model & financing options together. i.e. the ‘packaged product’, with the cities that can benefit through implementation. This matching process is important. And it goes beyond cities also. Our desire is to convene demand-supply-investor. Pavilion events, which we intend to run in collaboration with the EIP-SCC and other SCC01 Lighthouse programmes are a means to convene at scale. To help ready cities for action, in a way that is better for all parties.

  • What are some of the plans you have for the work in the next year?

Packaging. Packaging. Packaging.
Investor engagement once we have ‘solids’ to show.
Shifting the gear from technical designs to planning for scale implementations
And kicking off in seriousness smart cities fund actions

  • Is there anything else that is important to mention?

Just a small end note: We set a target to “trigger €500 million smart cities investment”. That sounded a scary number at the outset when compared to the modest €24m input. However why shouldn’t we focus on leverage? Why shouldn’t the EC expect a scale up factor? Many banks do.

When you consider what just one city spends on infrastructure, any one of the cities could consume €500m themselves without too much fuss. And when you do the maths, you actually don’t need too many of our measures, for example smart lamp posts, to start to get big numbers. So it starts to get less scary, and more doable.

When we started we had no clue how to deliver on that! It sounded appealing though. Now, with the ideas we have for packaging, for collaboration not only between our cities, more across the other Lighthouse programmes (that are broadly tackling the same scope), and with working with our scale-up cities and the EIP-SCC this feels achievable – though not so much so that we can possibly be complacent!

For more information contact Graham Colclough
Graham.Colclough@urbandna.eu

These interview questions were prepared by Science Impact for the article SHAR-LLM, Sharing Cities, HORIZON2020 included in Impact publication, December 2017. Click here to download the full article.

SEE ALSO

event

ICSIC conference
08/07/2019 - 10/07/2019

event

A smart city vision: how to make it happen
10/10/2018 - 10/10/2018

event

Sharing Cities at UK-PL Science Forum
13/09/2018 - 14/09/2018

This project has received funding from the European Union's Horizon 2020 research and innovation programme under Grant Agreement N°691895

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Nathan Pierce

Programme Director

Greater London Authority
pmo@sharingcities.eu

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Bernadett K├Âteles-Degrendele

Communication & Replication

EUROCITIES
bernadett.degrendele@eurocities.eu
+32 479 52 04 81