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Special Reports in Cities look to climate-friendly greenbacks to fund smart projects by Sue Weekes, News editor, Smart Cities World, is more and more evident all over the developed world. It is like a salvation tendency aimed at the assurance of a viable future. It is how the world chooses to respond in the coming years to avoid human activity-induced climate change that has massive repercussions for generations yet to be born.

The idea has already been covered in our Green and Climate Resilient Development but will it be implemented. Let us see the details of what is proposed.

Cities look to climate-friendly greenbacks to fund smart projects 

With technology set to play a key part in the global recovery from the pandemic, we explore evolving funding methods that are helping cash-strapped cities get smart.

Green finance options will increasingly become part of the funding mix

There is a certain irony in the situation that having stalled many smart city projects around the world in 2020, the Covid-19 pandemic is likely to prove the catalyst for accelerating programmes via stimulus and recovery packages.

While technology doesn’t hold all the answers when it comes to helping cities recover and build back better, world leaders clearly recognise the important part it must play.

Recovery packages

US president Joe Biden’s $2 trillion infrastructure plan outlined in March has been the most notable stimulus package to date and ticks many boxes when it comes to core to smart city areas: $100bn for broadband internet; $100bn for electric grid and clean energy; $174bn for electric vehicle incentives, $85bn for public transit, $50bn for disaster resilience of infrastructure; and $20bn for road safety.

Meanwhile, the European Union (EU) pledged a similarly unprecedented package worth €1.8 trillion to help the continent recover, with the centrepiece of NextGenerationEU funding the Recovery and Resilience Facility. This will provide €672.5 billion in loans and grants available to support reforms and investments undertaken by EU countries. Its ultimate goal is to make European economies and societies “more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions”.

“Covid has slowed down many projects due to the paralysis in procurement processes,” says Alicia Asín, CEO of Libelium, which develops and deploys Internet of Things (IoT) sensors for a range of smart city applications. “Now we expect that NextGenEUrope funds to help incentivise and accelerate projects again. Those funds are a great tool to make a difference moving forward from proof-of-concept phase to production.”

These sentiments are echoed by Murali Krishnan, senior industry analyst at growth strategy and research firm, Frost & Sullivan, who also witnessed the abrupt halting of smart city infrastructure development as economic growth dwindled in several economies and governments were forced to reduce spending. “Government financing will continue to be the leading funding model globally as government stimulus programmes across major economies have been initiated to drive economic growth,” he says. “Such stimulus programmes include digitisation and technological spending complementing the rise of smart cities.

Government financing is ideal for projects that have low economic viability but strong social need

“For instance, China rejuvenated its ‘new infrastructure initiative’ post Covid, with announcements to increase investments across 5G, smart grids, data centres, and other smart city initiatives.”

Technology has come to many cities’ aid during the global pandemic and will be key to their recovery, but critical challenges that existed before the pandemic such as digital divides, climate change, congestion and poor air quality, haven’t gone away. As Michael Huerta, former acting US secretary of transportation and administrator of the Federal Aviation Administration, who recently joined the board of directors of mobility analytics company StreetLight Data, points out proper consideration must now be given to how best to channel this money.

 “In the transportation arena, the [United States] administration has talked about making smarter investments that not only address mobility needs, but at the same time help advance our climate and social equity goals,” he says. “This presents an opportunity to reimagine what we invest in and to talk about how smart city projects can address all three of these goals.

“There is a lot of pent-up demand for mobility, and I do expect an acceleration of projects overall.  The key will be to address needs in ways that have broad support.”

Green funding

 Alongside stimulus funding, green banks and other more sustainable funding models are likely to become part of the mix. A green bank is a public, semi-public or not-for-profit institution that offers a variety of financial products focusing specifically on climate mitigation projects, such as renewable energy and energy efficiency programmes.

The C40 Cities Climate Leadership Group is among those calling for a “green and just” recovery. In November last year, it urged leaders to explore the use of city green banks as a mechanism to deliver a Covid-19 recovery plan that prioritises the environment and local communities. Its step-by-step guide, Establishing a City Green Bank, is based on the experiences of major locally operating green banks.

 “City-level green banks have the potential to deliver low-cost investment through a self-sustaining mechanism, offering long-term environmental, social and economic benefits for people,” said Claire Markgraf, head of financing of C40 Cities’ Sustainable Cities Initiative.

 Banks are also launching greener and more socially responsible funding initiatives that aim to help the private sector fund smart city technologies. At the end of 2020, the United Overseas Bank in Asia launched the UOB Smart City Sustainable Finance Framework  to make sustainable financing more accessible to companies that are helping to create smart cities.

 The framework is aligned with the United Nations Sustainable Development Goals (SDGs) and is supported through the Monetary Authority of Singapore’s green and sustainability-linked loan grant scheme.

Covid has slowed down many projects due to the paralysis in procurement processes

It sets out the criteria that the bank’s corporate and institutional clients must meet when accessing a range of products, from green- or sustainability-linked loans and trade finance facilities to other sustainable banking products. Under the framework, businesses must also be able to demonstrate how their activities promote a better quality of life for residents through renewable energy, green building construction, improved energy efficiency, green transportation, sustainable water and waste management and/or climate change adaptation.

 Meanwhile, cities in developing countries around the world have seen the benefits of support from the Green Climate Fund (GCF), set up in 2010. A critical element of the historic Paris Agreement and the world’s largest climate fund. it is mandated to support developing countries raise and realise their ambitions towards low-emissions, climate-resilient pathways. The GCF’s current portfolio features 173 projects around the world with a funding commitment of more than $8.3bn.

According to the Saigon Times, the Asian Development Bank (ADB) is proposing a major $67.3m smart city project in Can Tho, a city located in Vietnam’s Mekong Delta in which the GCF is involved. The report says finance will be sourced from an official development assistance loan of $32.9m from ADB, another loan from the GCF of $7.07m and the city’s reciprocal capital of $20.2m.

The report explains that Can Tho City, the investor of the project, will borrow the money while the Ministry of Finance will sign agreements for borrowing and using the ADB and GCF support on behalf of the government.

Switching mechanisms

Smart city projects can, of course, be funded from multiple sources. Krishnan explains that these can be chosen during different phases of the project depending on a number of factors. “Project initiators must carefully choose funding mechanisms depending on risk appetite and return on investment expectations,” he says, adding: “Direct financing through government allocation or international grants is popular in developing regions, whereas more developed economies often rely more aggressively on revenue-based financing models to build infrastructure.

“Government financing is ideal for projects that have low economic viability but strong social need.

“Public and private partnership (P3) models vary in terms of agreement though they are found commonly in developing and developed regions as a means of financing.”

Huerta is a “big fan” of public-private partnerships and despite recent announcements about federal funding, believes it is important to continue to explore opportunities in this area: “This requires a lot of discussion between cities, investment partners and the larger community about shared goals and objectives, and being willing to hold everyone accountable for meeting them.”

 Transit Wireless, a 5G, neutral host infrastructure provider of wireless, wireline and data-driven solutions to transit operations, has a long-standing public-private partnership with the New York City Metropolitan Transport Authority. In its recently launched white paper Infrastructure in Crisis: How P3 can save critical projects in a post-Covid World, it says P3s “fill budget holes” where cities have limited options to raise revenue. It contends that the P3s that work most successfully today are those that allow a win for all parties – the government entities, private partners and citizens – at a cost and risk model that is sustainable even during the worst fiscal times.

Technology has come to many cities’ aid during the global pandemic and will be key to their recovery

Typically, this sees burden of much of the financing shifting to the private partner. The P3 provides revenue opportunities to municipalities, for instance, advertising on free public wifi or generating revenue from a road toll. The provider also carries the responsibility for the performance of the infrastructure throughout its lifecycle.

The white paper highlights, though, that success of the P3 is reliant on the right mindset and behaviours, as well as a collaborative plan and understanding of the required outcome. “It is imperative that when entering a successful PPP, the public entity and the private entity view each other not as parties on opposite sides of the negotiating table, but as partners who work to achieve the overall goals,” says Melinda White, CEO of Transit Wireless. “The right plan accounts for contingencies should obstacles arise.  When approaching a PPP, it is essential that the company truly understand and deeply connect with the needs of the agency and its operations.”

Going forward, White believes that federal support actually strengthens existing and future and create more opportunities for collaboration. “It will incentivise cities to move ahead with network infrastructure, partner with private companies, and commence the work to build connected communities.”