Two centuries ago, Shanghai was a sleepy village of fishermen and farmers. Today, it’s a dynamic metropolis whose cityscape is defined by gleaming skyscrapers and a population of more than 23 million. It serves as a symbol of China’s emergence as the world’s second largest economy and the way urbanization is transforming the world’s most populous nation.
Urbanization in China stood at almost 53% in 2012 and is expected to climb to over 70% by 2050, reflecting a global trend. Now, we are planning to attract another few hundred million people to our cities, hoping they will serve as a new engine of growth based on consumption rather than investment and exports. But many worry that, at this pace, urbanization will overstretch the environment and infrastructure of our cities.
China’s vision on “New Urbanization” holds the promise of building energy-efficient, eco-friendly, liveable and intelligent cities that centre on people. But to create this new infrastructure requires not only good technology but also smart administration. Public-private partnerships allow cities to look beyond existing city infrastructure providers, and asset-bundling and new partnership models will deliver value to city administrators and citizens.
Investing in a connected public-lighting infrastructure is one crucial part of the equation. Intelligent and energy-efficient lighting solutions can significantly enhance quality of life in cities. It affects the residents’ sense of safety and influences the degree to which cities create an inviting environment for business and tourism.
LED technology has been maturing rapidly and meets lighting needs and a city’s energy consumption and cost-reduction targets. Smart lighting solutions will go one step further, with an “Energy Internet” that uses data communications and connectivity in an innovative way to make devices and lighting systems smart. While the future of public lighting moves from analogue to digital, new value can be obtained from operational savings or revenues from these enhanced service offerings. However, at the same time, this instigates a move away from traditional tendering.
Traditionally, cities’ tendering new infrastructure projects focused on the lowest price (of a lamp), but this is already changing towards the total cost of light (i.e. cost of ownership). In view of the US$ 6.5 trillion associated with China’s urbanization goals, the time is right for a new approach and, in essence, this will speed up the shift towards the “value of lighting”. China should continue tendering on the basis of the total value of ownership, which includes the social and liveability benefits that citizens expect from their city leadership.
Such a fresh perspective can give rise to innovative financing solutions. Last year, for example, 15 department stores of the New World Group in China initiated their LED lighting project through an Energy Management Contract. The initial investment for the new lights was financed by a third party that will get a return from the future energy savings. When such Energy Management Contract models are applied in other large LED lighting projects, we can in a concrete way get a taste of how this will accelerate the adoption of LEDs in China.
The Climate Group estimates that China is well placed to gain competitive advantage also in terms of its city infrastructure, by deploying a mix of policies, subsidies and market aggregation initiatives that capitalize on the large size of China’s market. China already accounts for about half of the world’s LED street lights and aims to increase outdoor LED penetration to 30% in 2015. I believe that this commitment will contribute to the realization of our audacious urbanization goals, which can, and should, inspire other countries.
Patrick Kung is a Member of the Executive Committee of Royal Philips and Chief Executive Officer of Greater China.
Image: People walk along a busy street at Pudong financial district in Shanghai. REUTERS/Carlos Barria