Investing in Smart Cities in Indonesia
The Indonesian government targets 100 smart cities by the year 2045. The phenomenon of the smart city arose from the development of global digital technology. Digital disruption is changing the way governments manage organizations and solve problems in the community. The phenomenon of the smart city continuously opens up new investment opportunities.
The characteristics of a smart city provide convenience to the community. The Internet of Things (IoT) facilitates better services and offers an easier life to the community. For instance, mass transportation uses an integrated and electronic payment system, a traffic light system that detects vehicle density, surveillance cameras, and reporting applications to the government or security forces.
For the government, the characteristics of a smart city simplify their work and improve their services to the public. Some examples are electronic ID cards integrated with important accounts, cameras and remote traffic control, air quality sensors, renewable electrical energy, and waste treatment. Other examples are the use of applications or social media channels to identify the needs of the citizen as well as to spread information to the public.
In general, smart city criteria are seen from six indicators namely government, economy, environment, quality of life, community, and mobility (“Smart,” n.d.). According to the Indonesian Ministry of Public Works and Public Housing, indicators of a smart city are development planning, green open space, transportation, waste management, water management, buildings, and energy (“The development,” 2021).
Smart Cities in Indonesia
The Indonesian government targets 100 smart cities by the year 2045. This program is known as the Movement Towards 100 Smart Cities. Currently, many cities in Indonesia have been classified as smart cities in terms of the implementation of IoT.
For instance, the IT-based traffic control system (The Area Traffic Control System) has been used in many cities such as Jakarta, Bandung, Surabaya, Medan, Malang, Batam, Pontianak, Balikpapan, Manado, and others.
The electronic parking payment systems have been implemented in Jakarta, Bandung, Semarang, Surabaya, Medan, Denpasar and Makassar. Bus network payment system and route and operational management applications have been operated in several big cities in Indonesia. Likewise, the online application of permit and complaint services.
Some other specific technologies were built by city governments such as the Smart Cards in Makassar and the Smart Grids in Yogyakarta. The Smart Cards in Makassar supports governmental and payment systems and the Smart Grids in Yogyakarta was developed to regulate the use of power plants.
The development of smart cities is strongly influenced by internet connections. The 5G technology has covered many cities in Indonesia and will continue to expand. The 5G technology opens up opportunities for the development of more useful IoT innovations in the future.
Opportunities in Urbanization
The 5G technology opens up huge investment potential in the future. The Indonesian Minister of Communication and Information estimates the range of IDR 591–179 trillion of the potential businesses following 5G technology in 2035 (Haryanto, 2021).
Investment in smart cities is growing due to the phenomenon of urbanization. Cities have become the largest settlements. By 2050, 68 to 70 percent of the world’s population is projected to live in cities (“Smart,” 2019; “Cities,” 2022).
By a projection of 9.8 million people in 2050, around 6.7 billion people would be living in urban areas. Currently in Indonesia, the urban population is estimated to be between 50 to 70 percent of the total population (“Smart,” 2019). In 2045, the population of cities is estimated to be 82.37 percent (Triwijanarko, 2019).
The large and dense population in the city creates various problems, particularly in the energy sector and environmental issues. Research shows that city dwellers are estimated to consume 75 percent of energy and produce 80 percent of CO2 globally (Devitte, 2022).
Other problems that commonly emerge in urban areas are health, housing, mobility, crime, and public management. As always, opportunities arise amid problems then it needs a lot of investment to solve those problems.
The red thread is the IoT. Innovation with the use of internet technology is needed to solve the problems emerging in urbanization. The digital sector is the core business for its implementation will affect the development of other sectors.
Mass transportation — like Light Rail Transit and Rapid Bus Transit — is one of the big investment opportunities in Indonesia. According to the Minister of Transportation of the Republic of Indonesia, rail-based mass transportation development has been planned in at least six cities, they are Jakarta, Bandung, Surabaya, Medan, Semarang, and Makassar (Anwar, 2020).
Furthermore, to respond to environmental issues, the demand for the transformation of fuel buses to electric buses is going to increase shortly. The procurement and operation of electric buses in cities in Indonesia become attractive investment opportunities considering the high mobility of the community in the midst of rapidly increasing density.
Indonesia pursues the target of producing 600 thousand electric buses and other vehicles by 2030 (Adit, 2021). The President has issued Regulation number 55 of 2019 concerning the acceleration of electric motorized vehicles in Indonesia.
PT TransJakarta — the operator of the largest public buses located in Jakarta — has targeted the replacement of all their ten thousand conventional buses with electrical ones by 2030 (Siregar, 2022). Whilst Surabaya dan Bandung will take over the 53 electrical buses after being used in the G20 Bali Summit by the end of 2022 (Al Alawi, 2022).
New And Renewable Energy Mix
The other big investment opportunity in Indonesia’s smart cities is the new renewable energy mix (NRE). Several regions in Indonesia have begun to increase the use of wind, water, solar, and waste in power plants.
The development of NRE exploration in Indonesia is expected to escalate after the issuance of two key regulations. Those are the Minister of Energy and Mineral Resources Regulation Number 26 of 2021 concerning Rooftop Solar Power Plants and the PLN (National Electricity Company) Electric Power Supply Business Plan 2021–2030 (RPUTL).
The key points of those regulations are the flexibility to sell 100 percent of electricity produced by rooftop solar to PLN and the national target of 51 percent of NRE by the year 2030. Hence, Indonesia’s NRE growth is assumed to increase by 23 percent in 2025 (Cindy and Fitriyanti, 2021).
The investment opportunity in the NRE power plants is wide open to achieve the 51 percent target of NRE by 2030. This opportunity becomes more attractive, considering the availability of private ownership of NRE power plants up to 64 percent in 2030 (Artanti, 2022).
The increase of the NRE availability, in sequence, will push the development of technology in other sectors such as mass transportation, internet connections, traffic systems, lighting of public spaces, environmental conservation, reducing pollution, and more, related to cheaper energy costs. Those developments will be the next investment opportunities in smart cities in Indonesia.
(This article has been published by Bright Indonesia Consulting)
Reference:
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