Smart Cities – how to master the world's biggest growth challenge

Dr. Holger Rubel, BCG Frankfurt

21 May 2014

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Urbanization is changing the worldEmerging market cities have changed beyond recognition

Shenzhen in 1990

Rithala

Rohini WestRohini East

Pitam Pura

Netaji SubhashPlace Pratap

Nagar

Pul Bangash

Keshav Puram

Kohat Enclave

Kanhiya Nagar Inder Lok

Shastri Nagar

TisHazari

Length: 8.3 km Length: 110 km

Shenzhen today

Delhi Metro in 2002 Delhi metro today

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Emerging market cities need to cope with massive growthSome emerging market cities will grow by as much as ~10 million inhabitants in 15 years

São Paulo 18%

Mexico City 22%

Calcutta 31%

Jakarta 33%

Cairo 34%

Mumbai 37%

Manila 40%

Tianjin 40%

40%

Wuhan 43%

Shanghai

Chongqing

45%

Guangzhou 48%

Karachi 50%

Delhi 50%

Chennai (Madras) 50%

Beijing 51%

Shenzhen 52%

Dhaka 53%

Bangalore 59%

Kinshasa 73%

Lagos 75%

Population growth in emerging markets mega cities 2010-2025 in % and absolute (in millions)

Source: UN World Urbanization Prospects – Review 2011; BCG analysis

22 11

139 4

2315 8

1610 5

2315 8

138 5

158 6

1911 8

2320 4

2520 4

1914 4

1310 3

1511 4

2719 7

1612 5

129 3

1410 4

139 4

2820 9

1510 5

2013 7

33

Population 2010 (mio)

Growth 2010-2025 (mio)Americas

Asia

MEA/Africa

Asia driving population growth in cities – finding smart concepts key to cope with related challenges

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Developed countries cities have significant climate change goals that often go beyond national commitments

• London: 38%• Berlin: 40%• Paris: 25%• Madrid: 20%• Warsaw: 20%• Roma: 20%• Dublin: 20%• Helsinki: 20%

Europe: Covenant of Mayors• Covenant signatories aim to meet and exceed

the European Union 20% CO2 reduction objective by 2020

• Local and regional authorities commit voluntarily to increase energy efficiency and use of renewable energy sources

• > 4,000 mayors with ~ 164 million inhabitants involved

• Cities fix climate reduction goals for 2020:

• Stockholm: 45%• Amsterdam: 40%• Zurich: 28%• Copenhagen: 20%

USA: Conference of Mayors

• Establishment of US mayors climate protection agreement in 2005

• > 1,000 mayors with ~ 88 million inhabitants involved

• Participating cities commit to take following three actions:

– Meet/beat the Kyoto Protocol targets in their own cities (7% reduction from 1990 levels by 2012)

– Urge state and federal government to enact policies and programs

– Urge U.S. Congress to establish a national emission trading system

Source: usmayors.org; EU covenant of mayors; BCG analysis

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Cities will have to manage two large, interrelated challenges

Growth & Urbanization: More people living in cities (% and total)

Growth & Urbanization: More people living in cities (% and total)

Climate change: Cities key to winning the climate change

battle

Climate change: Cities key to winning the climate change

battle

• For the overall battle against climate change to succeed, city GHG1 emissions need to be reduced significantly

World population in bn

10

8

6

4

2

0

% Urban population

80

70

60

50

40

30

20

20502040203020202010200019901980197019601950

40%

30%

30%

GHG1 emissions repartition in 2011

In city

Possibly in city

Rural

60%

20%

20%

Production-based estimate

Consumption-based estimate

• Share of people living in cities will increase from~ 50% today to ~ 70% in 2050

• Cities must provide infrastructure for a growing world population and an increasing percentageof people living in (mega-) cities

1. GHG: green house gases Source: United Nations Cities and Climate Change Report; World Bank Cities and Climate Change Report; World Urbanization Prospects: 2011 Revision Population Database; press research; BCG analysis

World population

Urban population

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"Smart Cities" improve sustainability, economic viability, and citizen well-being using innovative services and concepts

Environmental, social and economic objectives of cities

Environmental, social and economic objectives of cities

Smart City definition for this presentation

Smart City definition for this presentation

1. Information and Communication TechnologySource: Pike research; European Smart Cities project; European Commission; press research; businessdictionary.com; BCG analysis

Smart Cities employ innovative services and concepts to improve environmental sustainability, economic viability and citizen well being by using

ICT based technologies– e.g. high speed networks – e.g. sensor and actuation technologies– e.g. advanced analytics

Non ICT based innovative technologies– e.g., renewable power generation– e.g., low emission vehicles– e.g., energy efficient building design

Urban Planning concepts– e.g., sustainability-enhancing city layouts– e.g., innovation, technology and business

platforms

• Investment• Jobs• Innovation

Economic viability

• Energy efficiency• Pollution• Resources

Environmental sustainability

• Public safety• Education• Healthcare• Social care

Citizen well-being

1

2

3

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Five major sectors in smart citiesTechnology examples

Smart Buildings

(Remote, cross) Building/Energy mgmt. systems

Smart Energy

Smart meters

Electric vehicle infrastructure

Distributed generation integration

Demand-Response

Smart Transport

Intelligent transportation

systems

Tolling & Congestion

charging

Smart Water&Waste

Smart water meters

Distribution network control,

leak detection, GIS

Smart Social

E-government

Remote social infrastructure

(health, education)

Safety & Security

Public transport system information

sharing

Smart parking

Smart consumer appliances and

devices

Storm and flood management

ICT

No

n I

CT

Co-Generation

Renewable Generation

Low emission vehicles

Low emission public transport

system

Purification methods

Leakage reduction

Green hospitals

...

Energy efficient building design

Energy efficiency refurbishment of

old buildings

... ... ... ...

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Smart cities can be mapped along two key dimensions

+

–

–

Importanceof ICT

age of city 'Make an old city smart'

' Build a new city'

'Focus on urban planning'

'Leverage ICT'

Rio Operations Center

Songdo

Masdar

Amsterdam

Public/private partnership Private corporations/investors Government/state owned

1

2

3

4

+Europe/NA/LatAm

Asia/Middle East

•Existing cities• Typically smaller

pilots/ projects• Higher ICT share

•New cities• Large scale

projects• Urban planning

focused

ChicagoOpen Data

5

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Songdo – South Korea's new sustainable business hub

Key facts SongdoKey facts Songdo

Project Overview

Key data

Key objectives

Major Partners1

• Largest private real estate development in history• Aims to create new and sustainable business hub

in Asia

• Cost: $40Bn• Size: 1´500 acres, 80´000 apartments,

75´000 residents• Timeframe: 2003-2020

• Environmental sustainability: Become a leading sustainable city worldwide• Economic viability: Develop a concentrated financial, economic and technology center• Citizen well being: Provide state of the art social, cultural and sports infrastructure

1. Exemplary, no exhaustive list

NY-based private real estate development and investment firm

South Korean Engineeirng and Construction firm

1

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Citizen well beingCitizen well being

Economic viabilityEconomic viability

Environmental sustainabilityEnvironmental sustainability

Songdo is the largest private real estate investment in historyUrban planning

• Incentivization of public transportation means

• Reduction of energy and water consumption as well as waste

• Building construction according to sustainability certification standards

• Concentrated financial, economic and technology center, free economic zone

• 3.5 hours flying time from one third of the world´s population

• International Airport Incheon 15 minutes drive from Songdo

• 40% of open space (600 acres)

• City design around central park (100 acres)

• State of the art educational, cultural, shopping and health care infrastructure

Office space

Commercial space

Residential space

Public space

Opera house

Golf Course

Central Park4.645.000 sm office space

225.000 housing opportunities

Large shopping malls, department stores

1

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Songdo focuses on activities across four of the five major sectors

SmartEnergy

SmartTransport

SmartWater&Waste

Central Park canal uses seawater instead of fresh water

SmartBuildings

SectorSector Initiatives and projectsInitiatives and projects

EV charging stations

25km bicycle lanes

5% parking for low-emission vehicles

Most buildings LEED certified

75% of building materials recycled

10.000 Cisco telepresence units planned

Centralized pneumatic waste collection system

Central, city-wide co-generation facility fueled by natural gas

Energy efficient LED traffic lights

ICT

1

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Amsterdam – 30 Smart City pilot projects

Key facts AmsterdamKey facts Amsterdam

Project Overview

Key data

Key objectives

• Public/private partnership with the aim to develop Amsterdam into smart city

• Main tool: inform. platform where entrepreneurs can initiate innovative solutions and test them on larger scale

• Environmental sustainability: Reduce ecological footprint of city• Economic viability: Provide entrepreneurs with possibility to test concepts on large scale• Citizen well being: Improve quality of living in Amsterdam

• Project themes: Living, Working, Mobility, Public facilities, open data

• Size: 30 Projects in 3 neighborhoods of Amsterdam

1. Exemplary, no exhaustive list

Major Partners1

3

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Citizen well beingCitizen well being

Economic viabilityEconomic viability

Environmental sustainabilityEnvironmental sustainability

Amsterdam is running 30 projects in the city area

• Introduction and roll out of new energy concepts

• Improvement of energy efficiency of public and private infrastructure

• Incentivization of energy efficient means of private transportation (e-cars, car sharing)

• Provide opportunities for young entrepreneurs to test ideas/concepts on a large scale

• Attract large and small corporations with affinity for sustainable city development

• Introduce new/smart work concepts

• Development of sustainable sports and cultural facilities

• E-government and e-healthcare solutions based on ICT

3

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SectorSector Initiatives and projectsInitiatives and projects

Projects are addressing all sectors

SmartEnergy

SmartTransport

SmartWater&Waste

Introduction of ICT solutions at care institutions

Smart Buildings

New car sharing platform

Smart work centers equipped with latest ICT infrastructure

SmartSocial

Energy efficient public swimming pools

Energy saving behavior projects and competition

Smart grids for optimized power usage (LV/MV monitoring

200 shore power stations allowing ships to connect to green energy

Introduction of tele-presence units

Introduction of smart containers

Smart building concepts minimizing energy usage

Fuel cell pilot in 17th century building

E-car charging stations

ICTICT

ICTICT

ICT

3

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City Type: Existing cityProject Scope:Pilot projects; roll-outsSector Focus:EnergySmartness Degree:High (e.g., smart metering)

City Type: Existing city/ hypergrowthProject Scope:City-wide enrollmentsSector Focus:Transportation, SecuritySmartness Degree:Medium (Transportation), High (Security)

City Type: Existing cityProject Scope:Pilot projects; roll-outsSector Focus:Energy, TransportationSmartness Degree:High (e.g., smart metering)

City Type: New city/hypergrowthProject Scope:City-wide enrollmentsSector Focus:Energy, Transportation, Water&Waste, EducationSmartness Degree:High (e.g., driverless urban transport, renewable)

City Type: New city/hypergrowthProject Scope:City-wide enrollmentsSector Focus:Energy, Water&Waste, TransportationSmartness Degree:Low (basic infrastructure)

City Type: Existing cityProject Scope:Pilots and city-wide enrollmentsSector Focus:Energy, Transportation, SocialSmartness Degree:High (e.g., electric vehicles, telepresence social infra.)

Different approaches to smart city developmentKey regional characteristics – overview

North America

South America

Europe

Middle East

Developing Asia

Developed Asia

Source: Press Research, BCG analysis

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Today: North America To come: Europe Long-term: Asia Pacific

Different growth patterns and changing regional relevance

Largest market today• First step:

Smart meters (roll-outs started) and buildings

• Second step: Smart transport and government

• Greatest risk is the lack of a coherent approach

Greatest market to come• Supranational (EU) decisions

and support for new technology pilots and regulation/technology penetration targets create huge opportunity1

• First step:Smart meters and buildings

• Second step:Smart transport and government

Long-term largest market• Overall market driven by Chinese

investments• South Korea, Japan and Singapore the

centers for smart city innovation• In developing countries (China and India)

strong basic infrastructure investments• First step in developing countries:

Smart meters (basic technology, theft prevention focus), public transport, traffic management and electric vehicles

• Second step in developing countries: Smart buildings

1. E.g. regulation for smart meter deployment, greenhouse gas emission targets, energy efficiency targets etc.Source: Pike Research; press research; BCG analysis