Funding infrastructure projects, whether it is upgrading existing ones or constructing new ones, involves massive investments. In the United States, the ASCE counted more than 45,000 of the country’s bridges as structurally deficient, but these bridges serve hundreds of millions of trips daily despite their poor condition.
Besides their transport infrastructures, including roads and rails, other critical infrastructures such as water systems, airports, waste management, dams and levees, etc., require upgrades and significant funding.
Bloomberg’s article cites a new financing mechanism or funding model that can fund infrastructure projects and close the funding gap currently at US$2.68 trillion to address the nation’s funding needs.
According to the article, there is a better way to finance infrastructure projects that do not involve raising taxes or traditional funding sources from private financing instruments, municipal bonds, or public-private partnerships like toll roads user-fee-based arrangements.
A new method to finance infrastructure is based on a financing mechanism that ties borrowing into the performance and structural health metrics of investments to lower risk and decrease the cost of infrastructure operations known as “smart contracts”.
A similar financing structure can also be applied to pay for infrastructure projects using infrastructure’s capacity to generate data. Infrastructure such as roads, bridges, drinking water and sewer pipelines, buildings, ports are increasingly equipped with sensors and other data collection systems.
The infrastructure’s capacity to generate data and insights in almost real-time is like “stocks” that asset owners or investors can harness to unlock new opportunities such as creating revenue streams, attracting new financing opportunities, or developing the next generation public-private partnership.
The article illustrates how this new funding scheme works.
“Sensors can pull data on water flow, traffic congestion, air pollution and more—all of which can be processed to illuminate how to deliver services more efficiently and cost-effectively. The data are attractive to insurance companies because they help to hedge risk, and to investors because the information can give rise to new revenue streams, or create value well beyond the infrastructure itself.
“Sensors on roads and bridges can monitor deterioration as well as the impacts of trucking. These insights could be used to price a fee structure for logistics companies based on how they reduce lifetime use or maintenance requirements. Models like this are being explored in the Netherlands and Germany. Rather than charge tolls, public agencies in those nations are considering farming out bridge portfolios to asset management companies that are collecting anonymized data on traffic volume, truck weights and structural health. In turn, those companies can sell that data in derivative markets to materials suppliers, insurance companies, marketing firms and hedge fund investors.”
According to the article, data adds a new revenue stream that can be sold to various business-to-business data markets.
The almost real-time data that infrastructure can provide into its performance, structural status can be priced as “stocks” and improve investments’ liquidity.
This exciting development can change how infrastructure funding and financing is viewed and that asset owners, investors, contractors, asset managers, technology providers, and related sectors should explore.
Data that public infrastructure generates will not only open new financing and revenue streams, but these new opportunities can contribute to infrastructure’s resilience and health to continue its critical services.