The Economics of Electrification Part One – the Costs and Benefits

The economics of electrification is an issue which has interested me for some time. So when drwaddles contacted me last week with some interesting information on the issue, I jumped at the the chance to have a look at it on this blog. Unfortunately, I haven’t been able to come up with any hard and fast rule on when a line should be electrified, but hopefully the information here can offer some insights when looking at whether a given line should be electrified.

So in this post – part one of two – I’m going to have a look at some of the costs and benefits of electrification, and then later I’ll set up a basic cost-benefit analysis to show the main factors factors which should inform the decision making process.

Costs

The main costs of electrification are in the construction and maintenance of infrastructure; as well as the need to purchase different rolling stock (or at least locomotives). Stringing up wires can be expensive – the recent Craigieburn electrification cost an exorbitant $115 million for 10km of works (thanks for the tip DB!). Whilst that price tag also included two new stations and re-signalling (as well as goodness knows what else – DoI often like to hide several years worth of operating costs in these numbers), we’re still talking about a fair bit of money. Even if we’re really optimistic and say that the actual electrification (consisting purely of wires, stanchions and substations) cost half that, the per kilometre cost is still $5.75 million.

Put into context, that would see the cost of electrifying 48km Geelong line as far as Marshall around the $276 million mark. Obviously, there are economies of scale for bigger projects and the Craigieburn project was outrageously expensive for what it was, but I’d already halved the per km Craigieburn figure to get $276 million for the Geelong line. To illustrate opportunity cost, it is worth noting that the original Vlocity order (for 38 2 car sets) cost $535 million.

Maintenance of the infrastructure is a crucial cost, but it is often more than offset by reduced maintenance levels required for electric trains. I’ll discuss this issue below.

Benefits

The potential benefits of electrification are fourfold – they consist of better acceleration, lower running costs when a large number of services are provided, the so called ‘spark effect’ and lower carbon emissions (depending on the energy source).

Improved acceleration

Electric trains generally accelerate faster than their diesel counterparts, so for lines with closely spaced stations (like a metropolitan rail system), electrification is often a must for the sake of maintaining a reasonable average speed. However, as station spacing moves further apart – as it does in the country – the benefits of faster acceleration are reduced. Consequently, I’d argue they aren’t a significant factor for a line like Geelong. I should also point out that metropolitan railways also tend to have a high level of service – for the implications of this, see below.

Lower running costs for high frequency services

Amos and Galbraith suggest that while capital costs for electric traction are higher, operating costs can be lower. This is because of lower train maintenance and fuel costs for electric traction. Indeed, Electric and diesel services have very different supply curves. Electric trains have high initial fixed costs (because of the extra infrastructure required), but a low marginal cost. Conversely, diesels have low fixed costs but high marginal costs. These supply curves are represented graphically (and somewhat badly!) below:

supply-curve.jpg

Basically, if fewer than Qx services are provided, diesel trains should run, but if more than Qx services are provided, electric trains should run. Calculating Qx in terms of trains per hour is something I’d love to do, but sadly I don’t have enough data to do it properly. Furthermore, the costs are going to be distorted in favour of electric traction over the longer term, as many of the capital works are a one off (well for 80 years anyway).

On top of this, I haven’t mentioned opportunity cost and the discount rate, so what you see above is a very basic approximation.

The ‘Spark Effect’

The ‘spark effect’ describes the apparently oft occurring phenomenon, in which patronage increases after electrification occurs because passengers like electric trains more. I’m fairly sceptical of this, largely because electrification seldom occurs without a concurrent change in rollingstock and/or service level.

Intuitively, I’d argue that a change in the type of train and how often that train runs are more likely to change passenger behaviour more than whether diesel or electric traction is provided. So in absence of a good sample of lines in which the means of traction was the only thing changed, I’ll rule this out as a definite benefit.

Lower carbon emissions

Electric traction can be better for the environment than diesel traction, although this gets a lot murkier when the electricity is generated from dirty sources like brown coal. I’ve seen a number of studies on this issue (some more dubious than others), and they have varying values for the carbon emissions and disparate average numbers of passengers per service. The basic rule of thumb should be that – if a decent number of passengers are carried – they will both be better than cars, and electric trains should be better than diesels (although this depends on average passenger numbers and the source of power). This is a massive topic in itself, and really deserves it’s own post.

This is not to say electric is always better for the environment – there’s no real envrionmental benefit to electrifying a line like Swan Hill which only carries two trains each way per day. The billions required have a much greater impact on the environment if spent elsewhere – that’s opportunity cost in action.

In part two I’ll set up a basic cost-benefit analysis which will provide a more formal way of weighing up the costs and benefits, as well as accounting for discount rates and opportunity cost.

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14 Responses

  1. In response to “The Spark Effect” – in those cases, those places had run-down track, stations etc and infrequent old diesel trains – and in the case of say Perth, had the infrastructure upgraded and a reasonably frequent spark service added. If there was good infrastructure and a frequent diesel service – I don’t see how there would not have been the same jumps in patronage! If you had some modern diesel trains replaced with modern electric sets running to the same timetable, that would make a better comparison.

    The Hunter Valley (Newcastle-Maitland/Telarah) in NSW would be a good example of a diesel service, as I have mentioned on Railpage before. Stony Point would be a poor example.

  2. How did you come up with the $180m figure for Craigieburn? The govt says it was $115m (after several cost blowouts), plus $36m for Coolaroo station (also over-the-top).

  3. Many thanks for the tip DB – I don’t know how $180 million got in there. All fixed now using the correct figure.

    cheers,
    Phin

  4. Thanks somebody. I agree re. Perth – while there were probably compelling reasons to electrify the system (could be cheaper if you want to run a frequent service), it was the service increases and rolling stock upgrades which boosted the patronage.

    Perhaps Traralgon was a good example of the nothing else being changed. I’m not sure that locals found much value in having the same carriages hauled by an L class rather than a B class.

  5. 2 major factors in the de-electrification of the Traralgon line:

    1. Only the Traralgon line was electrified instead of the full 4 originaly included in Operation Phonix (Ballarat, Bendigo Geelong and Traralgon).

    2. No EMUs were built meaning the major cost of de-electrification was a swap of locomotives of which there were a pre-existing supply.

  6. Spark Effect

    I’m somewhat agnostic on it too, for the same reasons as others have outlined.

    Three recent examples to consider, Perth, Adelaide and Auckland

    You need a case and control – the modernised electric railway and the modernised non-electric railway.

    Perth introduced the ADK/L cars which were their first airconditioned cars just as the Fremantle line was being closed, and the rest of the system was being run down. They also did not constitute a majority of the cars, with ancient cars including loco hauled continuing right up until electrification.

    Upon electrification all the older cars including the ADK/Ls were got rid of, services were vastly improved, stations fixed up and a new line built. It is therefore moot whether they would have got the same effect from all the improvements except electrification. Electrification was also a ‘shot in the arm’ that gave people confidence the system was not going to be closed or further scaled back, which the ADK/L cars did not.

    Adelaide got its Jumbos at a time when a significant improvement to the system looked promising under the Dunstan Government. When this government was removed, all the plans fell in a heap. Like the ADK/Ls, the Jumbos did not produce a signficant improvement as the rest of the system began running down. They were not a majority of the stock when introduced, in fact, only finishing off the loco-hauled wooden cars as the Redhens continued for many years. Electrification and/or light rail services will likely improve ridership, because other asset and service improvements would probably happen at the same time.

    Auckland has had a significant improvement in ridership from a very poor base by introducing service improvements, a new city terminal and modernised rolling stock without electrification. Electrification is contemplated as an underground loop would probably not be possible with diesel stock, and likely improvements in frequency as well as age of existing stock make an electrification package worth considering as a whole.

    Conclusion: A significant part of the boost from electrification is likely to come from service and asset improvements, and from growing confidence that the system will remain and not be shut down (all 3 of these cities contemplated replacing rail with buses). Sydney and Melbourne electrified to reduce the costs of high frequency steam services, and Brisbane to improve services and reduce costs of loco-hauled diesel services.

    Electrification should be considered as a way of lowering operating costs where high frequency is being considered, and as a way of facilitating undergrounding of services. But not for its own sake. It is probably also the only practical option for consistent speeds above 250KM/H but not a situation Australia is facing, sadly.

  7. Agree about Traralgon – hard to see how the L classes made that much difference.

  8. […] March 27, 2008 The Economics of Electrification Part Two – Cost-Benefit Analysis and Calculating a Net Present Value Posted by Phin under economics, electrification, trains   Here’s the second part of my discussion of the economics of electrification. You can find part one here. […]

  9. Lower carbon emissions, this depends obviously on

    1. work in installing equipment
    2. Use of low carbon or clean technology

    3. Electric trains aren’t carrying around air all day, but actually have passengers on them

    I’d be interested in your equilibrium point Cx/Qx with respect to Werribee-Geelong, and to see it posted on the Railpage – will stop that dribbling!

    Especially on a base that assumes the Velos and loco-hauled services will continue with slight expansion. I suspect that even at $6m a pop, adding velos is good value for the run, as you could run them in 6 car strings.

    There may of course be a hidden assumption – that conductors would be got rid of because the trains are electric – but that is a labor relations issue, nothing to do with technical costs.

    Hard to understand why Geelong (1 hour from Melbourne) has conductors, and little vandalism, while Frankston (1 hour from Melbourne) has no conductors, and substantial vandalism.

  10. Thanks for the comments – basically agree with all of it Riccardo. I find the Frankston/Geelong comparison very interesting – it’s the strange country=comfy diesel train , city=uncomfortable electric train we seem to love in Victoria.

    Of course, if a service standard were properly applied, the distinction would be made on the basis of the nature of travel – not what’s powering it. There’s no reason places like Frankston and Pakenham shouldn’t have the same quality of interior fixtures as Geelong – and conductors too. It’s just the way the politics has evolved.

  11. On the carbon emissions issue – there’s also going to be a selection bias issue. Emissions for train passengers are based largely on number of passengers per train – and the electric lines are likely to be busier than the diesel lines because diesel is better for light loadings. That’s going to have an impact on the emissions per passenger over and above the fuel used.

  12. The question about the 1 hour service standard is a great debating topic – and leads to perverse outcomes as the people of Sunbury are about to find out.

    For example, bringing Ballarat times down to 1 hour suggests that in future it should get a lesser standard of on-board comfort. People will think twice about lobbying for faster trains!

    I think Sunbury people will be really p’d off with what happens to their service when it is electrified, except in the middle of the day when the frequency will increase.

  13. […] to both Sunbury and Melton as part of the plan, but since I looked into it in these two posts, I’ve wavered somewhat. Electrification works well for high frequency metropolitan […]

  14. […] on the very optimistic assumption of the project costing half of what Craigieburn cost per km. See part one for […]

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