Assessment of Costs and Challenges
In the previous section an assessment of the benefits arising from a high speed rail link to Scotland has been presented. The case for the Scottish link also depends on the additional costs of both the construction and operation of the link. The cost estimates provided below are based on analysis by HS2 Ltd and Greengauge 21. The components of the estimated cost of the high speed rail link to Scotland are:
Capital costs - the cost of land purchases, design, materials, construction (including labour and power), allowance for risk and an allowance for optimism bias. Optimism bias reflects the likelihood of project planners estimating costs to be lower than they eventually prove to be.
Operating costs - the operation and maintenance of the railway including train crew and station staff, the maintenance and lease of the rolling stock, again with optimism bias.
5.1 Capital costs
Greengauge 21 (2009e) estimate the infrastructure costs including depot costs and optimism bias associated with a high speed rail section from Manchester to Scotland at £16.9billion (2009 prices). This cost estimate is built up from a variety of unit costs which are derived from different sources. The primary source is the High Speed One line, between London and the Channel Tunnel, with this being the only high-speed line in the UK. Greengauge 21's consultants highlight that HS1 is, per kilometre, the most expensive high speed railway that has been constructed anywhere in the world (financing costs excluded) and therefore argue that these unit costs cannot simply be applied as they stand. They believe that costs for future high speed development could be less, particularly in the context of a large national high speed rail project that would have less overhead per km of line. Therefore, the analysis has adopted unit costs that have similar characteristics to the proposed line sections. For example, Contract 240, which is composed mostly of tunnels from Stratford to London West Portal, was used as a basis for urban tunnels. Data on the construction of high speed lines in France were then used to identify and adapt any costs that seemed over- or underestimated.
Caution should be taken with the Greengauge 21 capital cost estimates as when modelled
sections are compared with similar HS2 Ltd sections there are considerable differences
in the values. Their analysis results in an estimate of £16.8 billion (2009 prices) for HS2 (London - West Midlands). An estimate of £9.2 billion (2009 prices) for London to
Birmingham Central & Birmingham International is provided by Greengauge 21 (2009e).
This route is not an exact comparison as it does not include a spur to Heathrow but gives an indication of the differences in the cost estimates, with HS2 Ltd's costs being 81% higher.
Given the significant difference between the Greengauge 21 and HS2 Ltd cost estimates,
an uplift of 50% has been applied to the Greengauge 21 cost estimates for the Manchester
to Scotland link, in the absence of any other evidence at this stage. This gives an estimated
capital cost of £25.4 billion (2009 prices). However, it can be argued that in business case terms this is a cautious estimate as actual costs may be lower. In 2009 HS2 Ltd
commissioned a 'benchmarking' study by independent consultants, BSL, which investigated civil engineering costs in other countries and compared them to costs in the UK. This study showed that civil engineering costs in the UK are up to twice what they are in other comparable European countries. Following this, the Infrastructure Cost Review, undertaken by Infrastructure UK (IUK), part of HM Treasury, investigated the findings further and identified the scale of issues and a range of possible actions that could be undertaken to reduce the cost of civil engineering construction in the UK. Therefore, if these actions are successful in reducing civil engineering costs in the UK, the cost of the high speed rail link to Scotland would fall.
5.2 Operating costs
Data for Greengauge 21's operating and maintenance cost model are mainly derived from UK inter-city train operating company operating costs and on the existing infrastructure management costs, and adapted to the high speed context according to practice on existing systems in other countries. These costs are then factored for which year they arise in as certain unit costs increase or decrease over time (inflation excluded) as they depend on: wear and tear of equipment, increase of energy costs, staff wages etc. The analysis assumes that maintenance costs of infrastructure globally increase by 2% p.a. between two renewals (track equipment must be replaced after 30 years). In addition, train operating companies' costs have been assumed to increase by 0.5% p.a., reflecting common practice in French preliminary high speed rail studies. Given these assumptions, Greengauge 21 estimate the annual operating cost in 2055 for the high speed link from Manchester to Scotland would be £396 million (2008 prices). However, there is also a reduction in the operating cost of the existing line in 2055, due to released capacity, of £73 million resulting in the total annual change in 2055 operating costs arising from the high speed rail link to Scotland of £323 million (2008 prices).
It is not possible to verify these figures with any estimates provided by HS2 Ltd as the two analyses do not provide operating cost figures for equivalent routes.
5.3 Challenges to analysis
Much of the quantitative benefits for the high speed rail link to Scotland has been provided by analysis undertaken by Systra and MVA for Greengauge 21. The analysis involved high level modelling and was aimed at making the case for a high speed rail network, rather than detailed analysis of a specific route. The model results provide a key source of evidence to support the argument that a high speed rail link is essential in achieving the greatest economic and environmental benefits for Scotland. However, the modelled results used by Greengauge 21 may be considered to be based on optimistic assumptions.
A key assumption in Greengage 21's demand forecasting is that demand is capped in 2055. This is in contrast to HS2 Ltd who cap demand in 2043. Greengauge 21 argue that it would have been inappropriate to use any other demand cap than 2055 as the high speed rail network was still being built up to 2055 in the model. Capping the growth in passenger demand in a specific year has been a topic of debate throughout the appraisal of HS2, with HS2 Ltd delaying the demand cap in their model by 10 years in their most recent analysis. The later the demand cap is applied the higher the level of passenger demand and therefore the more people affected by the high speed rail link. Consequently, the later demand cap will result in a higher level of benefits compared to the equivalent analysis with an earlier cap.
It should also be noted that due to different timings with the Greengauge 21 and
HS2 Ltd analysis there are significant differences in the economic growth forecasts used in the modelling. If the Greengauge 21 analysis was to reflect the latest economic
forecasts it is likely that the level of benefits would fall.
Section 5.1 identifies an additional assumption in the Greengauge 21 analysis which may seem to be optimistic, with capital costs significantly lower than that of HS2 Ltd. However, as detailed that section it would be hoped that through actions of Infrastructure UK the cost of civil engineering projects in the UK would fall and therefore the final construction costs would be less than the HS2 Ltd estimates.
Greengauge 21 (2010) identify several key risks which are inevitably associated with a technically, environmentally, financially and politically complex project such as high speed rail. However, given appropriate risk management and mitigation these risks should not impact the decision to include Scotland in the UK's high speed rail network.