Friday, March 07, 2014

Study dispels the myths of high-speed economics

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A REPORT into the further development of Europe's high-speed rail network, conducted by Civity Management Consultants on behalf of French National Railways (SNCF) and Alstom, should prove invaluable to transport planners, politicians, railways and proponents of high-speed rail projects as it sets out the criteria for success while dispelling some of the myths around high-speed rail which are often used by opponents and detractors.

The report starts by making the point that European policymakers are committed to expanding the high-speed rail network but lack a clear idea of how to achieve this.

Civity categorises high speed into very high speed (VHS) for speeds of 300km/h and above, medium high speed (MHS) with a speed range of 250-280km/h and upgraded conventional lines (CUP) for speeds between 200 and 220km/h. Civity has looked at both infrastructure and operating costs, and its economic analysis covers railway system costs, revenue potential, user benefits in terms of time savings, and wider socio-economic benefits.

One perhaps rather obvious finding is that whatever type of high-speed line is envisaged, the corridor must serve a large and dense population base as this provides for an attractive train frequency which will generate the revenue to justify the investment. High-speed rail is most competitive with road and air between 500 and 800km as this is where the highest elasticities of demand are observed. The ability to charge higher fares because of shorter journey times coupled with a high-quality service, such as Germany's ICE, helps to boost revenue still further.

One of the myths dispelled by Civity concerns the widespread belief that operating costs rise in line with the maximum speed. Civity says this is inaccurate: "On corridors suitable for very high speed travel, operation costs of modern purpose-built trains are lowest at design speeds of between 250km/h and 300km/h and only increase gradually beyond 300km/h." Civity says this is mainly due to the higher train and staff productivity made possible by short journey times which means labour and capital costs decrease with higher speeds. Energy costs increase gradually above 300km/h but, as we have reported before, improvements to train design, aerodynamics, and traction equipment are helping to mitigate this.

Maximum speed is not the only driver of infrastructure costs. Others include:

• the number of major structures, such as tunnels and viaducts, required

• a mixed traffic line is much more expensive than a passenger-only one, and

• the massive additional cost of building or upgrading lines in densely-populated areas.

Another interesting finding is that the medium-speed option has a lower benefit:cost ratio than either new-build VHS lines or upgrading existing lines because the infrastructure costs are often the same as for 300km/h lines while demand is lower. However, the operation of 250km/h trains on a 300km/h line for short-distance services where there is little difference in journey times, as is widely practiced in Spain, can help to reduce operating costs without compromising line capacity.

Where demand and elasticity are both healthy, Civity says VHS is often the best option while in other scenarios a conventional upgrade may have a better benefit:cost ratio. In favourable scenarios benefit:cost ratios can range from 2.0 to 3.0. Where demand and elasticity are more modest, VHS and CUP benefit:cost ratios are often similar, but with proportionally lower absolute values.

Civity also found that VHS is preferable to CUP when the gap between the infrastructure costs for the two types of project is relatively small. This is because of the greater potential revenue with VHS. Where capacity constraints are an issue, Civity says VHS is best able to relieve congestion in the future.

Upgrading lines to a maximum of 220km/h is often the most attractive option because of the low investment required compared with building new lines. Although Civity does not mention it, introducing tilting trains is also a very cost-effective way to reduce journey times at minimal cost while increasing revenue.

However, there is a major caveat: upgrading lines can prove extremely expensive and sometimes approach the cost of building new lines when the railway runs through densely-populated areas or if a project requires reconstruction to improve the alignment or ease gradients. A case in point is Britain's West Coast Main Line where costs spiralled during the course of upgrading the line.

Building a high-speed line in isolation, such as the Mecca - Jeddah - Medina project, can certainly be viable if there is sufficient demand, whereas building a line as part of a network - such as the Frankfurt - Cologne high-speed line, where trains run well beyond the two cities - will produce much better results.

Another factor which will affect the economic case for high-speed rail is the relative prosperity of people living along the corridor. Construction costs might be lower in eastern rather than western Europe because wages and land prices are lower, but revenue will also be lower because citizens have less spending power than their western European counterparts so train fares have to be much lower.

Finally, the report warns that because the array of parameters is so complex, each potential corridor must be analysed individually to determine the best solution. Nevertheless the case for investing in 300km/h lines is very sound.

David Briginshaw

David Briginshaw joined IRJ in 1982 as associate editor, and was appointed editor-in-chief in 2001. He has travelled the world extensively interviewing many of the CEOs and senior managers of the world's railways and transit systems which has given him an in-depth knowledge of the global railway industry.

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