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.
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.
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).
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:
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.
Filed under: economics, electrification, trains | 14 Comments »