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Smart Cities: What is the Future?

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Welcome to the latest DNV GL Talks Energy podcast series. This series focuses on digitalization and the impact of technology and data. Each week notable industry thought leaders join us to discuss AI, data analytics and all the hot topics impacting the strategies of global businesses, communities and nations as we transition towards a more efficient energy system.

Smart Cities: What is the Future?

What fundamental principles must be established before a city can become a Smart City? DNV GL talks to Gordon Falconer, Global Director Smart Cities for Schneider Electric, about the growing trend for global cities to develop ‘smart’ capabilities; what this means for its citizens; and what steps governments are taking as they look to the future.

In this engaging episode, Gordon shares his views on what being a Smart City really means; how the ASEAN cities are approaching the transition; and the challenges that they are facing. He also gives us an insight into the balance between developing green field and brown field Smart Cities; and addresses some of the factors involved in financing the projects. Finally, he discusses some of the visible and less visible signs that a city is using technology to improve the lives of its citizens.

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NARRATOR Welcome to the DNV GL Talks Energy podcast series. Electrification, rise of renewables and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.  

MATHIAS STECK Welcome to a new episode of DNV GL Talks Energy, my guest today is Gordon Falconer, Global Director, Smart Cities, from Schneider Electric, welcome Gordon.

GORDON FALCONER Good morning, Mathias, how are you?

MATHIAS STECK Very well. We want to talk about smart cities today and how they operate, but before we get into this topic it would be great if you could introduce yourself as a person, as well as Schneider Electric.

GORDON FALCONER Sure. So, I’m Gordon Falconer, the Global Director of Smart Cities for Schneider Electric. I’m based in Singapore, but I have a fairly global brief obviously, and so I support the company globally on the topic of smart cities. So, that means I’m basically running around the world, working with government, property developers, you know, municipal councils, federal governments, State, etc, and helping to support my company with its engagements with the public sector and obviously also private sector operators within cities and within the Smart City environment. I’m actually a property developer or a chartered surveyor by background; I used to work for the Abu Dhabi Government many years ago, in charge of the strategy for Masdar City, which was a zero carbon $20 billion city. And then I went to Cisco and now the last four years I’ve been with Schneider Electric. And Schneider Electric is the world’s leader in energy management automation control systems, so, we’re very much about product solutions and services into the energy sector, but that encompasses the built environment and every facet of a city, whether it’s water, power, transport or buildings. Our little bits and pieces of operational technology are involved everywhere we go, almost.

MATHIAS STECK Gordon, Smart City has become a bit of a buzzword and if you go to conferences often people, kind of, just raise this question, what does it actually mean, smart? – And there are suddenly very different dimensions to this. So, I would be very interested in your view on what we actually mean when we talk about a Smart City?

GORDON FALCONER A friend of mine, not far from here, a professor with [National University of Singapore] NUS, had his students do some research to work out how many definitions of smart cities, and I think he said it was in excess of 250 definitions. So, there are many, may definitions for a Smart City, I tend to use doing more with less, enabled by technology. Either way there is, I would say, a general consensus across all of those definitions that has some element of technology being an enabler to do things a little bit better.

MATHIAS STECK So, that’s also interesting in that sense that here in the region we have this ASEAN Smart Cities Network, if you listen to their problems they want to solve, it’s very basic problems actually, it’s not this far-out technology. There’s something about waste and waste water, it’s about liveable homes or affordable homes and it’s something about transport. I would be interested to get a bit of an outlook about the global development about this topic, so different cities have different problems to solve. So, how would you see the regional spread about what’s going on in the smart city development?

GORDON FALCONER I think I’ll pick up on what you said right at the beginning, which is in respect to the ASEAN cities, and in particular the problems are different and in some ways I think you were touching on fundamentals. And I was chatting with an Indian chap the other week, I do a lot of work in India, and he made the comment, you can’t have a smart road, unless you have a road. So, the fundamentals have to be put in place first, before you can get too fussed about being smart. So, in that sense, you know, if you’re looking at a, you know, a well established western city... Where are you from, Hamburg?

MATHIAS STECK Yes.

GORDON FALCONER Okay. So, yes so, a very well established, you know, German city in terms of infrastructure and you’ve got everything, kind of, in place. So, in that sort of an environment, and I’ve done a lot of work in European cities, in particular Amsterdam and Barcelona; all of that, sort of, city, like Hamburg, you’ve got this building block in place and then you can start to do things on top of it to, shall we say, extend the life of older infrastructure or get more out of it, make it perform better, etc. Whereas when you don’t have a road, you don’t have a bridge, you don’t have running water, there’s 300 million people in India without energy, directly to their homes, you’ve got to get the fundamentals in place first. 

So, the challenges are different and what I tend to see in the, let’s call it the emerging countries, where they’re catching up on, on infrastructure, in a sense; those ones take a slightly more pragmatic kind of view, where they’re making a road, but they’re making it as Smart as they can within the parameters of not going over the top, because they have to make sure that there is a road. 

They’re probably unlikely to go and build a road and at the same time put sensors in the road itself to work out whether there’s a car park there or not, they’re just going to get the road in first and then they might worry about that type of technology down the track. So, I think you see a slightly more pragmatic implementation of a smart city. Having said that, we’ve got a project in India where they’re building a new region next to an existing city and they’re putting in a lot of things that other cities in the west don’t even have. They’re putting in a micro-grid, they’re putting in smart water, in terms of water SCADA, you know, to monitor the pipes. They’re doing a whole lot of things that are actually quite good, but they’re still practical. So, I think what I tend to see in the developing world is an element of smart, that is very much based around practical.

MATHIAS STECK I mean, it’s interesting, because we also hear this discussion that doing greenfield projects, and I think or I know, you just mentioned you were involved in Masdar, which is probably something where people had all the freedom that you’d like to have, although there were constraints, anyway you had something. You didn’t have to build on an existing infrastructure or didn’t have these constraints. But we clearly see that doesn’t seem to be such a clear benefit or disadvantage in that sense, so building into an existing infrastructure comes with the benefit of having something you can build on, building in greenfield comes with the benefit of you are not constrained because there is nothing which could constrain you, apart from money maybe. But how is that balance working?

GORDON FALCONER You’re absolutely right in the sense it’s both scenarios, both greenfield and brownfield have their advantages and their disadvantages. And they are different advantages and they are different disadvantages. So, there was a European city that was looking at putting in district heating as a service with another company. they couldn’t actually do it, because they didn’t own or have control of the fundamental pieces of infrastructure that the private sector company needed to deliver the heating as a service; because the city was old, developed and its structural, not structural, but its legal framework was so complicated, in a sense, that they couldn’t do that. 

Now, when we were developing Masdar, we were obviously going to be putting in district cooling as a service and we didn’t have that sort of a problem. But then there were all sorts of other issues because it is greenfield, and one of the fundamental issues of any greenfield development is, and we used to have this saying, you can’t build half a power station. So, if you’re building a proper, if you’re really truly building a city, that means you’re responsible for the energy generation, the water capture and distribution, etc, etc. 

Those sort of problems, building real estate at the same time as building infrastructure actually quite problematic; because the world that most of us have lived in, the property developers have just gone in and built on a piece of land and plugged into everybody else’s grids, existing networks, no problem. But suddenly you’re building a district or something that’s pertaining to trying to be a city scale, you’ve suddenly got the issue of timing. And I’m sure from your side, we all know about PPAs and etc, etc, but the take-off risk, the uptake, you know, all that gets more complicated when the developer is suddenly saying, well no I don’t want to build all the residential first, I’ll build some of the commercial, then I’ll build of the residential. And then the infrastructure team’s saying, well hang on, when do we start building the power station or when do we start putting in the photovoltaics and when do we...

MATHIAS STECK Gordon, you mentioned legal aspects, regulatory aspects, there’s also finance. There are big numbers out there, there’s a report, Smart City Tracker, saying that the market is growing from about US$40 billion in 2016 to about 80 plus in 2025. So, I would be interested if you agree with that, but more importantly is where is all that money coming from?

GORDON FALCONER I think it’s not a matter of where the money’s coming from, because projects in smart cities are done at different levels and structured in different ways. So, if you’re looking at a greenfield, as we were just talking about, a greenfield city, the money will generally come from the real estate, and to a certain extent there’s always been a bit of an old, not a rule of thumb, but a way of doing greenfield real estate; which is a master planner will sell some land to pay for the infrastructure and he keeps the best pieces of land for himself and develops those and third party people come in, and away you go. In existing cities, obviously the money for projects existing from, so we’re talking the difference here between CapEx and OpEx. OpEx, you know, the cities tend to be fairly consistent, but it’s the CapEx which is different. Now, the CapEx is coming in from a variety of sources all the time anyway. So, whether it’s coming in from federal, from, like, the EU or from, it could even be IFC, World Bank, you know, ADB here, etc, etc.

The money will come in different areas for different types of projects, they will then just happen to be deployed generally in the city. So, in a sense it’s not a matter of working out the market size, for smart cities and then saying where is the money going to come, it’s really just a matter of working out what does the city need to do, what are the best ways of doing the projects. Now, I’d adopted some years ago the Why What How, which is why do you do it, what do you do, how do you do it. And the Why is the business case, as in the environmental, the social, the economic impact, the What is the technology or the project itself and the How is the policy, the financial governance, operating models, etc. So, as long as you work that all out, the money will then flow. There are a lot of funds out there chasing a good return, in the sense of, and they might only be chasing 7%, but they’re actually still chasing it. 

Now, if projects are put together in the right way, the money will flow to those projects; whereas if the money doesn’t flow to a project you’ve, kind of, got to question, is the project being put together well, is there a fundamental basis there? Now, of course at that point you’ve then got to then distinguish between social infrastructure that has only a social return versus something that is attractive to the private sector, because they can get a financial return and get a very nice IRR. And obviously in cities you’ve got a mixture of the two, and that’s where government may well have to step in, either federal, state, regional or bigger, to actually help fund some of the social infrastructure projects which need to be done.

MATHIAS STECK It’s a slightly complex topic, but I’d also like to go back to this motivation question. So, we have these big cities, Singapore, Shanghai, Amsterdam, New York competing with each other to attract multi-nationals and everything. So, they have of course a different funding perspective than others. But a very important aspect is also things which have to be done to address things like megatrends like urbanization, many people moving into cities, especially also here in this region, you talked a bit about India. So, people have or cities have to handle problems, there’s a job to be done and sometimes that might be regarded as the next man’s problem. I’m also talking about climate, resilience and all these kinds of things. So, having established this and then talking about the citizen who has to, kind of, engage with the city and perceive it as smart, in this kind of sphere I would be, kind of, interested in your opinion how a smart city becomes something people realize is making their life better and be a real thing?

GORDON FALCONER To be fair there’s actually two elements though to being smart, as in a city can be smart invisibly and it can be also smart visibly or a combination of both. So, having a very efficient energy grid is kind of invisible. The citizens may not realize it, but because the power doesn’t go off, there are no blackouts or brownouts, that they don’t, kind of, realize every day that they’ve actually got a very good smart energy grid, and that’s a bid of a fundamental in a smart city, is having good energy.

Whereas then the visible part of smart tend to be, oh okay, I’ve got all these apps on my phone which makes my transport, the way I navigate the city easier, that’s a much more visible way. There’s also probably, I guess, also the element of communication. So, if you look at Barcelona, Barcelona City now has a different administration, which has changed the focus from smart city to smart citizen, and that’s very much a messaging to the people. So, the previous administration was very strong on smart city and very pro-business and making sure that they were doing interesting, different things, that were obviously fundamentally good for the people. But the new administration is taking it, you know, very much closer, closer to the people in that everything has to have a link to the citizen. So, you’re just seeing, in a sense, a different way of doing things. 

But that’s how cities work, if you think about it most cities actually do the three Ps, so not P P P, but the three Ps. They do policies, programs and projects and each government will have a different set of policies, which will then translate to different programs, which will then translate to different projects. 

Yes, it’s a competition and some cities will use it as a communications kind of, PR kind of thing, but at the end of the day they’re still judged by the citizen. So, if they’re not doing a good job, they get voted out in a democracy. But even in countries where there is less democratic presence, you’ve still got the mayors and the people who are running the city are very responsive to the people. I’ve done work in China previously a lot and they’re very, very responsive and very progressive. So, ultimately they’re still trying to do the right thing for the people, it will just manifest itself in slightly different ways of visibility versus invisibility.

MATHIAS STECK Gordon, talking about all these things, one very important aspect is sustainability and cities is actually one of the 17 UN Sustainable Development Goals. So, I know you’re active in that area as well and I would be interested about what you’re doing in that?

GORDON FALCONER I guess I’m active in two areas, first of all because Schneider has a huge focus around sustainability, because energy efficiency is at the core of sustainability anyway. But then I wear another hat, which is I’m the Chairman of the Advisory Industry Board for the [United Smart Cities] USC, United Nations USC Smart Cities Program, which is run out of Europe. And the UN is taking a view now that to achieve the SDGs, the 17 SDGs, that they need to get more involved with cities, because everyone does recognize that the cities are the engines of the world, in a sense, the powerhouses. 

But there is still, has always been this fundamental problem of connecting the private sector with the cities in the right way. They’re always talking, but they’re not necessarily communicating. And so ,the USC Smart Cities Program is very much trying to drive, via the UN, all of those different SDGs into cities. And so this program, that’s being worked on at the moment, will be launched heavily next year, in 2019; and the idea will be to really try to fundamentally get everybody working together in such a way that the projects happen and that the needle gets moved and that the SDGs are achieved. Because some of them are really not on track probably, I suspect.

MATHIAS STECK Okay. Gordon, unfortunately we are coming slowly to an end of this episode, before we end I’d like to ask you a slightly visionary question as a citizen. Maybe talking about evolutionary versus revolutionary, when we look 10 years down the line, what do we expect as a citizen that’s different in our day-to-day life, living in a smart city?

GORDON FALCONER It’s a good question, I think the fundamentals will be the same, 10 years ago we were still drinking coffee in cafes and 10 years before that we were drinking coffee in cafes. Now, what we were doing in the cafe, 10 years ago we may or may not have been using an iPhone, certainly 20 years ago we probably weren’t and we were probably communicating. And actually you probably know about the bar in England where they’ve build a Faraday cage around the bar to ban the use of mobile technology, so the people in the bar have to communicate with each other. And the only way they can actually talk to someone on the phone is if they pick up a phone on the table, which is a landline, and talk to another table. 

But I think we’ll still be drinking coffee in the cities, I think in 10 years we’ll keep seeing incremental change. At a city level, at a smart city level, I think we’ll start to see more focus on the invisible parts, so, I think the cities will just get smarter underneath the hood. I think our transport networks will probably be the biggest visible change that we’ll see, in terms of the way we navigate. The trains will be there, the buses will be there, the cars will be there. I don’t think we’ll have the flying cars or anything like that in 10 years, but I think the way that we navigate will be a lot better and a little bit more seamless. Because if you think about it, at the moment our phones are not linked to anything really, none of our devices are linked to anything. 

So, as machine learning gets better and as things are linked more and more, I think navigation will be something that will improve. And we might see little tweaks of little things, so that when I’m walking into this building for a meeting my phone already knows which way for me to, turn left or right, and in fact sends you a message before I even have to pick my phone up and ask reception where does Mathias sit, you know. So, I think we’ll see those sorts of little changes, but we’ll still be eating, sleeping, driving, flying, doing all the usual things, but there’ll be the little enhancements.

MATHIAS STECK Gordon, thank you very much for your good insights on smart cities and the discussion. And thank you very much to the listeners for listening in. That was Gordon Falconer, the Global Direct of Smart Cities of Schneider Electric.

NARRATOR  Thank you for listening to this DNV GL Talks Energy podcast. To hear more podcasts in the series, please visit dnvgl.com/talksenergy.