Building a smarter city? Think about the business model first

Building a smarter city rests on a solid business plan. But drafting a viable one is trickier than you might expect.

SAN FRANCISCO -- Building a smarter city takes a lot more than just setting up the infrastructure -- it needs a solid business model too.

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However, considering the concept (and even the definition) of a smart city is still up for discussion, establishing a successful business model for this purpose isn't easy.

"One of the key things when we look at smart cities is to step back and think about what the word 'smart' means," said Peter Schwartz, a senior principal at energy consulting and certification firm DNV KEMA, while speaking during a panel discussion at Verge @ GreenBuild on Monday morning.

However, establishing that business model might mean thinking and advertising concepts that might not sound as enticing to investors.

Lee Burrows, managing director at VantagePoint Capital Partners, asserted that what's really important is a business model that works -- rather one that just focuses on hotter topics that generate more buzz.

He explained that these business models need to consider items such as energy information, demand response and better control for smarter municipal infrastructures surrounding healthcare, transportation, and supply chain management.

Burrows posited that as this sector has evolved, most businesses are most interested in a solid return-on-investment solution. Schwartz concurred later by adding that "there's a pent-up demand to invest in energy efficiency" because many investors haven't found ROI with a lot of biotech and cleantech solutions.

Burrows commented that one possible roadblock for smarter cities thus far is that -- at least to a certain extent -- Silicon Valley was ahead of itself on smart grid deployments. He suggested to the keynote audience to think about the notion of creating Google in the 1970s before there was an ubiquitous communications network.

"You sit here with a great idea and social component, but there is nothing to run it on," Burrows continued. "To a large extent, that's where the industry has been."

Nevertheless, Burrows asserted that there are real business mechanisms for implementing a smart grid into a smart city.

For a real world example, Steve Malnight, vice president of customer energy solutions at Pacific Gas & Electric, said that the utility company is deploying both smart grid and smart meter infrastructures. But he admitted that the industry hasn't "hit the point where you bring them together."

"As we move forward, it's about how we bring more intelligence into the system," Malnight said, adding that PG&E is working towards a goal of achieving up to 30 percent renewable energy by 2020.

PG&E's plan involves building a new grid from scratch made up of new energy sources, including hydropower, gas, and nuclear. While wind and solar are much more variable, Malnight acknowledged that they are also not totally unpredictable, so those can be harnessed and incorporated too.

"The grid, the way it was built before, was really built for large-scale generation plants. We're about to move to a whole different space," Malnight said.

Promising that "we're going to turn the whole thing on its head," Malnight discussed how this could affect transportation, as one example. Malnight noted that electric vehicles, for instance, can't be charged during the day because those are peak hours.

But in 2020, the grid in PG&E's service areas in California will be different -- so peak times will be different too.

"Those flexible resources are going to be extremely valuable on that future grid model," Malnight predicted.

Photo: runner310/Flickr

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