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A new report, published by Deloitte, investigates how cities can effectively finance smart city projects. Government officials need to understand the projects and their values and then analyse the full range of options for funding, financing, and procurement before choosing the strategies that best fit their situation, according to the report.
While the smart cities movement offers exciting new opportunities for governments, their citizens, and businesses, finding the money to support such products or services can be a complex undertaking.
Technology risk, uncertain project revenue and the short-term nature of technology projects are some of the impediments that make it difficult to finance smart cities projects.
Deloitte suggests a model for delivering an effective smart city project. It focuses on three key steps:
- Understanding project and value
- Consider funding and finance options
- Determine relevant procurement and delivery method
The report offers a detailed analysis of the process city leaders should follow to formulate their funding model:
- Business model: a robust business model is necessary to determine a clear path to steady project revenue.
- Value capture and asset recycling: a city can use value capture techniques or asset recycling strategies to provide a contribution to funding for a smart city project.
- Financing and funding options: multiple financial sources and investors are required to cover the various elements of a smart city project, such as traditional infrastructure assets, new technologies and connectivity, safety and security features. Project financing, traditional loans and leases, and vendor finance are some of the typical financing mechanisms used.
- Procurement structures: Different procurement structures, and specific procurement mechanisms should be applied to accommodate the various funding/financing strategies selected.
You can read the entire “The challenge of paying for smart cities projects” report here.