Puerto Rico’s Opportunity to Rebuild: Smart City Tech

16 March 2018

While Opportunities Abound, Projects Face Financing Challenges & Companies Confront Operational Adoption Hurdles

 

 

NOTE:  This blog piece is created by the Acuris Studios team, the custom events and publications arm of Acuris. Opinions and views expressed in this article are that of the author. This blog is written as research for the upcoming Debtwire Puerto Rico Restructuring Forum, where investors will discuss more on the island’s rebuilding efforts, economic future, and creditor and lender dynamics. 

 
 

After enduring two category 5 hurricanes and a historic bankruptcy, Puerto Rico is assessing all its options to kick-start its contracting economy. Part of the solution may lie with a confluence of cutting-edge technologies that could, in time, transform Puerto Rico's storm-ravaged infrastructure into a 21st Century foundation that supports tomorrow's major commercial activities and further tightens the connection between man and machine.

 

Of course, such bold ambitions beg the question of how the bankrupt territory will finance forward-looking projects. It’s expected the US Congress and federal agencies – such as FEMA – will provide funds to rebuild Puerto Rico's electricity grid, roads and other critical infrastructure via civil projects. And to their credit, island officials, business owners and investors are looking not only to replace and install transmission lines and asphalt, but are looking to give the island an infrastructure upgrade utilizing "smart city" tech.

 

Coining the term “Smart  City”

 

Smart city tech, a catchphrase that has dominated headlines almost as much as blockchain and cryptocurrency, is more conceptual than some tightly-worded definition used to describe a piece of hardware or software. Smart city tech is the design and plan of utilizing various technologies and connected data sensors to monitor and manage public assets, transportation systems, power plants, water supplies and other community services. For a great example, check out the videos here that show Duke Energy workers employing the use of AceCore's Zoe quadcopters – aka drones – to locate fallen power lines across Puerto Rico and thread those lines through poles, saving volunteers time and money.

 

How would Puerto Rico finance the innovations of smart cities?
 

Several US cities and states have procured smart city-like projects through public-private partnerships (P3s), such as the ongoing Kentucky Wired project that will bring high-speed internet connectivity to all corners of the rural Bluegrass State. According to a survey by engineering, procurement and construction company Black & Veatch, 60.5% of utility, municipal, commercial and community stakeholders said that P3s will be the most effective financing model for smart city projects.

 

While Puerto Rico pursues multiple P3 projects, the island's creditors may want to ask themselves an important question: What type of funding mechanism – source of revenue – will be employed, weighing availability payments vs. demand risk? For the uninitiated, demand risk is when project developers and investors take on business risk, hoping their projections of consumer demand for the piece of infrastructure are accurate so that they recoup the cost and make a profit. On the other hand, such projections become much less important when using availability payments, which means the grantor – the government – will pay installments to the project developer over decades for building the infrastructure, regardless whether people use it or not. In the latter case, one can view availability payment agreements as a loan to the government, however the debt is kept on the SPV's balance sheet and enables state officials to sidestep statutory debt limits. Obviously, given the island's state of fiscal affairs, project developers and investors will be gravely concerned about counterparty risk in an availability payment scenario.

 

I am personally interested to hear from Puerto Rico Public-Private Partnership Authority Executive Director Omar Marrero Diaz, who is slated to speak at Debtwire's 5th annual Puerto Rico  Restructuring Forum on April 19, at 10 on the Park in New York City, to address this issue for current and future prospective P3 projects.

 

Regardless of how projects get financed, initial efforts are underway to ensure Puerto Rico procurement agencies learn about the latest smart city tech that is available. In fact, the Smart City Council recently announced that the island won its Readiness Challenge, a grant program that offers workshops, digital tools and contributed resources from the IT industry for smart city growth.  A Smart City Council workshop meeting is scheduled for San Juan in May where experts will educate local officials on how to rebuild the island's infrastructure in a way that includes cutting-edge technologies. 

 

Possible examples of tech Puerto Rico may adopt 

 

Perusing the catalog of smart city technologies and aware of what other US cities have procured to date, I could see Puerto Rico implementing smart street lighting, which allows authorities to keep real-time tracking of lighting to ensure optimized illumination and deliver demand-based lighting in different parking zones. It also helps in daylight harvesting and saves energy by dimming out sectors of parking lots with no occupancies. Another application, connected cars and smart streets, can acquire data and deliver information – traffic, road blockages, roadworks, etc. – and services to and from millions of devices.

 

As autonomous and electric vehicles continue to make headlines, officials around the world will have to begin thinking about how to buildout the appropriate infrastructure to accommodate new consumer demands. One piece of smart city tech, connected charging stations, can be built in parking decks, shopping malls and buildings, airports and bus stops across cities. Electric vehicle (EV) charging platforms can then be integrated with IoT to streamline the operations of EV charging while measuring its effect on the power grid.

 

Aside from those few examples, plenty of other technologies exist that might find their way to Puerto Rico, including applications around smart buildings, smart industrial environment, smart city services – see Kansas City as a great example – smart energy management, smart water management and smart waste management. See eInfochips Marketing Executive Mohit Bhardwaj's blog for a rundown on the technologies and corresponding applications of each.

 

Further sweetening the pot to buildout 21st Century infrastructure, revenue generation from smart city tech for municipal and commercial stakeholders is expected to grow from USD 25bn to USD 62bn in 2026, according to ABI Research.

 

While such stories get us excited and optimistic for Puerto Rico's future, plenty of challenges remain.
 

And of course, the challenges that may come 

 

One of the biggest challenges Puerto Rican officials may face is the need to dismantle information silos that have organically grown within a myriad of government agencies and offices. Doing so will help officials find a way to make data-informed decisions and increase efficiencies. During a recent IWCE conference, Smart City Council Executive Director Jason Nelson said breaking down silos of information among municipal offices will be paramount, as then city officials will be able to respond to infrastructure inadequacies and the challenges of booming populations. Nelson pointed to Boston as the latest example, where residents were empowered to pull back the veil to see how their city was operating, which afforded them the opportunity to develop tools to improve municipal efficiencies.

 

Yet, creating efficiencies may prove very difficult in Puerto Rico as the island grapples with corruption and graft.

 

“Local media report almost every day that mayors and agencies on the island are embezzling federal relief money, and relying on partisan clientelism to provide or deny local services across the island,” states University of Connecticut Professor Charles Venator-Santiago, writing for Huffington Post.

 

While breaking down information silos will be no easy task, the opportunity may present itself as Puerto Rico restructures and reforms its government.

 

The private sector too will have to confront its own set of challenges in delivering smart city projects. Returning to the use of drones, many developers and utilities are still trying to figure out how to squeeze as much value out of unmanned aerial vehicles (UAV) as possible.

 

In the February 2018 edition of Power  Engineering magazine, authors David Price, Nathan Ives and Caitlin Frank wrote in an article: "Developing a UAV-capable enterprise is more than simply purchasing the UAV hardware and flying it around assets. Building a culture of adoption for UAV technology requires considerable thought and planning for the people, processes, and technology within an organization. Many utilities have started to explore the benefits of using UAV to support asset inspections but struggle to move beyond pilot projects to develop standardized processes that are a part of their overall enterprise asset management program."

 

"A utility, recently having purchased a rotary UAV, wants to look at several hundred miles of transmission lines damaged after a large storm devastated the area. Although the technology is at hand, no one on the team knows quite where to start: What are the critical assets that need to be assessed, and how do we deploy our teams to start inspecting the damage?"

 

I highly encourage power company asset management professionals and smart city tech investors to read through the Power Engineering story as it goes into depth about incorporating drones into a utility or power producer’s operations. 

 

When and if the Puerto Rico Electric Power Authority becomes privatized, new owners could have the organizational flexibility to figure out the best processes possible to capture as much value from smart city tech as possible – including the use of drones and EV charging stations.

Key takeaways 

 

  • Puerto Rico officials will take a hard look at smart city tech applications for its rebuild

  • Smart City and other P3 infrastructure projects will face financing challenges

  • Government reform is needed at a local level to reduce barriers to information and eliminate corruption

  • Utilities, power producers and project developers will face operational tests in incorporating smart city tech hardware
     

Please join me and a lineup of industry experts who will be able to discuss more developments and business opportunities in Puerto Rico at the upcoming Puerto Rico Restructuring Forum. Click here to view the event’s agenda.

 
 

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