Can UK smart city projects harness $7B in private funding?

New research identifies nearly $7 billion in funding for U.K. smart city projects if players can tap into flows of private capital.

An article by UK Authority discusses the recent smart city research paper by Siemens Financial Services. The paper modeled private sector financing opportunities to make up the shortfall in public funds for British smart city projects.

After looking at private funding sources in 13 countries, the study concluded that the U.K. could rustle up $6.98 billion for such projects.

“Cities around the world are increasingly engaging in smart development to improve efficiency of local services, enhance sustainability, improve the lives of their citizens and develop their competitiveness,” said Siemens Financial’s Chris Wilkinson. “Private sector asset finance allows cities to make the full range of SmartStart technology investments in a timely manner.”

SmartStart is a phrase used to describe smaller-scale, early stage smart city projects. Siemens Financial estimates that the top 40% of U.K. cities could be raising private sector asset financing for these types of projects.

It identified certain early stage smart city technologies that can provide dependable return on investment and have already attracted asset financing arrangements. These include: vehicle routing, parking systems, building controls, improved medical technology, low-energy streetlights, road pricing and citizen self-service online.

The research paper gets to the heart of one of the key challenges to smart city project development: an overreliance on public funding.

City leaders are keen to verbally support the concept of smart cities, but the timeline for return on investment for these smart technologies is relatively long compared to the lifespan of a politician’s career.

This makes it difficult for cash-strapped governments to justify such delayed payback when there are always other pressing problems that could reap benefits quicker. And this predicament is common the world over, not just among U.K. municipalities.

Two main avenues of UK private sector funding

UK Authority managing editor Mark Say identifies two main avenues for private sector financing.

“It can work on a project-by-project basis, often extending over a matter of decades, for initiatives with a proven RoI,” he says. “This is akin to public-private partnerships that tend to be large, complex, involve a consortium of financiers and fix the rate of return for the length of the project.”

He says the other potential financing source is through asset financing. This is a short term, agile option often employed by companies for buying equipment to drive growth.

“In the smart places context it would apply to projects such as a smart routing system or an energy-efficient building, which require smaller investments and can show a well-proven RoI,” he says. “The projects can stretch from a few months to a few years, and generate savings that are often realised in relatively quick time.”

This comes as industry pundits are urging big government to butt out of smart city development. They instead want this left to local governments and companies who can more flexibly grow these initiatives.

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