Smart City Investment Opportunities
A $20 Billion Play on Modern Energy
As a child in the 1970s, this is how I saw city life in Baltimore...
It was images like the one you see here that were plastered all over the nightly local news.
It was images like this one which are still embedded in my mind from the days when my father and I used to pick my mother up from her downtown office, because we only had one car back then.
It was images like this one that kept most of us from ever wanting to live in the city again.
But sometime around the early 1980s, a transition began...
Facilitated by a mayor in Baltimore who essentially brought in private capital by offering a myriad of incentives and the promise of an investment that would eventually spark a billion-dollar city renaissance, and make a handful of investors very, very wealthy.
His name was William Donald Schaefer, and he will likely go down as one of the most forward-thinking mayors in the history of Baltimore City.
By creating a business-friendly atmosphere that attracted a conga line of eager millionaire developers, Mayor Schaefer turned Baltimore's once desolate and crime-ridden downtown harbor district into a model for economic growth that is still replicated in other parts of the country to this day.
Free Markets and No-Nonsense Leadership
A few years after Mayor Schaefer was elected in 1971, he was faced with a major challenge.
The city was crumbling and crime rates were so bad, it was nearly impossible to even work downtown without getting robbed at some point. Residents were fleeing in droves, and drug lords and gangs roamed the streets freely.
The city's economy was degrading rapidly, and bold, decisive action was needed. If Baltimore was ever going to serve as a revenue generator instead of an economic burden to the state of Maryland, a free market coupled with no-nonsense leadership was paramount. And that's eventually what Baltimore got.
Sometime in the mid-1970s, the framework was developed for a revitalization project in the city's downtown business district.
Hand in hand, private industry and city officials worked tirelessly to create opportunities for the city's residents and for investors. They created a waterfront retail center that laid the groundwork for a complete overhaul of the entire downtown area — which today includes two state-of-the-art sports stadiums, a very busy conference center, dozens of high-end hotels, museums, R&D facilities, and a thriving retail district.
The story of Baltimore's downtown renaissance is an interesting and inspiring one, but it's also a small example of the kind of global city development that's under way today...
Trillion-Dollar City Migration
In less than 40 years, the global population of city dwellers is set to reach 6.3 billion, up from 3.6 billion today, with most of this growth happening in developing countries.
And in just 13 years, there will be 37 megacities across the globe— each boasting populations in excess of 10 million (22 of these cities, by the way, will be in Asia).
The result: Existing urban infrastructures and resources are going to be stressed to the point of collapse, if immediate efforts aren't taken to prepare for the influx of this new generation of city residents.
The threat of such a crisis is certainly enough to make governments across the world take notice. But it's also provided the sweet smell of opportunity for investors. And it's for that reason that, over the course of the next fifty years, we're going to witness a trillion-dollar transition to what's being called “smart cities.”
The cities with which we are accustomed today are not equipped to handle 6.3 billion people, all demanding water, food, transportation, and energy.
To accommodate that kind of load, innovations in urban services, design, and technologies will be required. And an enormous amount of investment will be necessary in order to facilitate advances in industries that are vital to the development of smart cities. These include energy, water, transportation and buildings.
Now, I've been following some of the early plans for these smart cities, and there really are some pretty exciting developments coming down the pike... developments that in many cases, already exist today on a very small scale, but will likely be incorporated on a much larger scale as the world begins its transition to smart cities.
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Here are a few that we're very bullish on...
Rooftop greenhouses, like this one in New York City, that produce more than 100 tons of greens and herbs annually.
Urban Fish Farms
Urban fish farms, like this one in Israel, that allow producers to raise fish in specialized tanks while detoxifying the water in which the fish are raised.
Large-scale stormwater-capturing cisterns, like these in Maryland, can use rainwater for irrigation and gray water needs. This particular system allows the building to use 90% less water than a conventional building.
Next-generation toilets, like this one created by students at Caltech, use solar to power an electrochemical reactor. The reactor breaks down water and human waste into fertilizer and hydrogen, which can be stored in hydrogen fuel cells. The treated water can also be reused to flush the toilet or for irrigation.
On the energy front, we will see more solar, underwater river turbines, and offshore wind power (as many of these cities are located along various coasts) generating power from within city limits. Energy efficiency will also continue to be a priority. Utilizing energy efficient windows, HVAC systems and high-efficiency motors, tomorrow's city buildings will be as much as 60% more efficient than the conventional buildings of today.
On the transportation front, mass transit will reign. Light rail will continue to expand within city limits, and high-speed rail will continue to provide quicker, more efficient transportation for those who commute in and out of major cities.
New developments will also be built around the concept of walkable communities. For those who drive, most will be driving micro-electric vehicles that will have readily available access to charging stations in parking garages and retail centers.
More Than One Way to Make a Buck
Although some of this stuff may seem far off, it's actually a lot closer than you may think. According to Pike Research's latest smart city report, the smart city technology market is expected to grow from $6.1 billion annually in 2012 to $20.2 billion in 2020. That's a compound annual growth rate of 16.2%.
And this is just the earliest stages.
Mark my words: Smart city development is going to present some pretty exciting opportunities as investors prepare for a major migration to the world's cities, both old and new. And it will be companies like GE (NYSE: GE), Siemens (NYSE: SI), and ABB (NYSE: ABB) getting the lion's share of the market early on.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor''s page.