CD.6.11

The Proposed Network Rail (Felixstowe Branch Line Improvements- Level Crossings Closure) Order

Core Documents June 2017

Felixstowe Branch Line Capacity Enhancement Project Business Case CD.6.11

Commercial in confidence: this report includes commercially confidential data

Felixstowe Branch Capacity Enhancements scheme

Socio-economic Appraisal Report

At GRIP Stage 3

Final

May 2017 Quality Assurance and version control table

OP Appraisal report DCF file Issue number name name date Analyst Reviewed by: Comments 139989 Felixstowe DCF 22.05.17 David Harley Aarti Dodhia Changes Branch Capacity Felixstowe (Economic (Economic made Appraisal Report branch Analysis Team, Analysis Team) following 0.8.xlsm Network and Alex Kirk reviewers' Strategy & (Scheme comments. Capacity Sponsor, Network Planning) Strategy & Capacity Planning)

Felixstowe Branch Capacity Appraisal Report Page 2 of 26 Executive Summary

This is a socio-economic appraisal of the Felixstowe Branch Capacity Enhancements scheme. The appraisal is at GRIP Stage 3. The purpose of this socio-economic appraisal is to contribute to the Outline Business Case (OBC) and/or Full Business Case (FBC) for this scheme. The main objective of the scheme is to enable additional freight trains to operate to/from the Port of Felixstowe. As at April 2017, only one option is being considered. This option is described as Option S1 in this appraisal. The scope of works include the following: provision of a new 1.4km passing loop at Trimley, four Automatic Half Barrier (AHB) level crossings to be upgraded, six foot crossing closures with associated rights of way diversions, a new bridleway bridge, five new S&C units, upgrade to the signalling power system, provision of a diversionary route for the Fixed Telecoms Network (FTN) and signalling enhancements for the new layout. The initial capital cost of the scheme for the purpose of this appraisal is £47.0m in 2016 prices. This is consistent with an Anticipated Final Cost (AFC) of £60.4m at GRIP Stage 3. 85% of the cost of the scheme is assumed to be funded by the Strategic Freight Network (SFN) fund and 15% by a developer contribution from the Port of Felixstowe. The main benefits of the scheme are the environmental and social benefits associated with transferring freight from road to rail – the mode shift benefits. The scheme is estimated to result in an extra four freight train paths per day (tppd) on the network. This is based on the latest capacity analysis work, which takes account of both the capacity increases on the branch line resulting from the scheme as well capacity constraints elsewhere on the rail network. It is also based on an assessment of future demand for rail freight to/from Felixstowe. The extra four tppd results in the removal of lorry journeys from the roads and hence the associated mode shift benefits. Taking account of the initial capital costs, other costs and the mode shift benefits, Option S1 has a Benefit Cost Ratio (BCR) of 7.0. This represents very high value for money, using DfT criteria. The Net Present Value (NPV) is 180.5m. Various scheme and appraisal risks have been identified in this appraisal. These include the risk that the requirements for a reduction in freight headways in the Ely area and for level crossing works in the same area result in significant additional capital costs and/or a reduction in benefits, relative to the costs/benefits which are included in this appraisal. These requirements were identified in the latest capacity analysis report. These potential extra costs and/or reduced benefits will be assessed by the Project Team and this appraisal will then be updated as necessary. This socio-economic appraisal was carried out in accordance with the Department for Transport’s (DfT) appraisal guidance, in particular the web-based transport analysis guidance or WebTAG, available at gov.uk. Costs and benefits were assessed over a 60 year appraisal period. This report presents the economic case for the scheme in the context of the DfT’s five case model for transport business cases, which consists of the strategic, economic, commercial, financial and management cases. It provides the economic case and contains information which may be relevant to the strategic and financial cases. It does not address the commercial and management cases.

Felixstowe Branch Capacity Appraisal Report Page 3 of 26 Contents This report follows the structure of the DfT’s five case model:  Section 1 explains the purpose of the economic appraisal and summarises the five case model;  Section 2 presents parts of the strategic case, focussing on elements of the case which are relevant to the economic case;  Section 3 presents the economic case;  Section 4 presents parts of the financial case, focussing on elements of the case which are relevant to the economic case; and  Appendix.

1. Introduction The purpose of this socio-economic appraisal is to establish the economic case for the scheme. The appraisal reflects the DfT’s Transport Business Cases document (January 2013). This sets out the five cases that investment schemes need to demonstrate; that they:

 are supported by a robust case for change that fits with wider policy objectives – the ‘strategic case’;  demonstrate value for money – the ‘economic case’;  are commercially viable – the ‘commercial case’;  are financially affordable – the ‘financial case’; and  are achievable – the ‘management case’.

This report is a socio-economic appraisal which sets out the economic case – it is not the full five case appraisal. The report references the strategic case (section 2) as this should be the starting point for the appraisal. This appraisal contains some information which may be relevant to the financial case. It does not represent the full financial case. This report does not address the other elements of the five case model: the commercial case and the management case. This appraisal is the first appraisal that has been carried out by NR for this scheme as a stand-alone scheme. However the Felixstowe to Nuneaton (F2N) strategic business case was produced by NR in 2014. This included an appraisal of a package of schemes (Package 1) which included an earlier version of this scheme and various other proposed schemes on the route (such as Ely Soham capacity and Haughley Junction doubling). The business case for this package was very strong: the BCR was “financially positive”, equivalent to a ratio in excess of 4 (very high VfM). The appraisal was carried out at GRIP Stage 2 (on average).

Felixstowe Branch Capacity Appraisal Report Page 4 of 26 2. Strategic case

2.1 Introduction This section presents part of the strategic case for the scheme, focussing on elements which are relevant to the economic case.

2.2 Strategic case As noted in the latest Authorisation paper for this scheme (issued 12th April 2017), the Port of Felixstowe has grown significantly in recent years and the rail freight traffic serving it is forecast to grow in the coming years. The project provides additional infrastructure to relieve an existing capacity constraint such that intermodal freight demand from Felixstowe in CP6 and CP7 can be met. The project will also improve performance on the branch and elsewhere on the network (where the relevant freight traffic operates). The Strategic Freight Network (SFN) Steering group has allocated SFN funds to this project as they consider it to be their top national freight priority. The scheme is be funded by a combination of the SFN fund and an £8m contribution from Felixstowe Dock and Railway Company Ltd, the operator of the port.

Digital Railway The project has been developed with Digital Railway requirements considered. All the new equipment and technology introduced by this scheme will be compatible with Digital Railway’s plans for the area. The main aspect of this is the choice of interlocking for the new signalling system. The project has agreed with the Digital Railways Chief Systems Engineer and Anglia Route RAM team to use the ‘Smartlock’ interlocking system. Currently the Digital Railway function is formulating its plans for the routes and the details of the Anglia strategy are not fully known. However it is expected that the branch line will not form part of Digital Railway’s short or medium term plans. Therefore the risk of abortive costs attached to signals and other equipment being removed if and when full Digital Railway is implemented is low.

2.3 Scheme objectives and outputs The main objective / output of the scheme is to enable additional freight trains to operate to/from the Port of Felixstowe. The benefits of the scheme, as appraised, are based on the number of freight trains which can operate on the relevant lines of route, not just on the branch line. These benefits are discussed in Section 3. Other objectives / outputs, as noted in the authorisation paper, are to maintain the hourly passenger service on the Felixstowe branch and to achieve operational performance and infrastructure reliability targets set by the Anglia route.

Felixstowe Branch Capacity Appraisal Report Page 5 of 26 2.4 Options assessed As at April 2017, only one option is being considered. This option, described as Option S1 in this appraisal, is summarised in Table 2.1. The benefits of this option as appraised are discussed in Section 3.

Table 2.1: Description of options Option Description Option S1 Option S1 is to enhance the infrastructure on the Felixstowe branch line. The scope of works include the following: provision of a new 1.4km passing loop at Trimley, four Automatic Half Barrier (AHB) level crossings to be upgraded, six foot crossing closures with associated rights of way diversions, a new bridleway bridge, five new S&C units, upgrade to the signalling power system, provision of a diversionary route for the Fixed Telecoms Network (FTN) and signalling enhancements for the new layout (source: Authorisation paper, issued 12th April 2017).

2.5 Base Case / Do-Minimum The Base Case – Do-Minimum for this appraisal is the current situation, based on the December 2016 timetable, with the following changes to passenger services (in line with the Anglia Franchise TSR2 service level) as discussed in the latest capacity analysis report:

 Liverpool Street to Southend service is increased to 4 trains per hour (tph) in the off-peak;  Romford station calls are removed from all Main Line services;  Liverpool Street to Lowestoft service introduced (calling at Ipswich and Colchester) operating 4 trains per day in each direction (off-peak);  Off-peak Liverpool Street to Ipswich services extended to Norwich (to give a 3 tph service);  Sudbury Town to Marks Tey service extended to Colchester; and  Ipswich to Peterborough service made hourly (and extended to Colchester).

This capacity analysis report is discussed further in Section 3.2 below. The Base Case – Do-Minimum also assumes that, without this scheme, the relevant freight would be transported by road. This is discussed in Section 3.2.

Felixstowe Branch Capacity Appraisal Report Page 6 of 26

3. The economic case

3.1 Introduction This socio-economic appraisal was carried out in accordance with the DfT’s appraisal guidance, in particular the web-based transport analysis guidance or WebTAG, available at gov.uk. Costs and benefits were assessed over a 60 year appraisal period.

Section 3.2 summarises appraisal assumptions and methodology. Section 3.3 presents appraisal results. Section 3.4 presents the sensitivity analysis and risks. Section 3.5 presents conclusions.

3.2 Economic appraisal assumptions and methodology This section addresses the main costs and benefits in turn: capital costs, operating costs and freight benefits. Assumptions are presented in this section and in Table A.1 in the appendix.

3.2.1 Capital costs Initial capital costs Initial capital costs are shown in Table 3.1. The discounted Present Value (PV) of these costs is shown in Table 3.9. The costs are split between “initial capital costs funded by SFN” (PV £47.7m) and “developer contribution from the port” (PV £8.3m). These costs include optimism bias (OB) (as noted in Table 3.1) and various other adjustments, in line with WebTAG. Table 3.9 also shows rail user and non-user disruption dis-benefits during possessions (PV £1.4m). These are based on Schedule 4 costs, which are included in the capital costs – see Table A.1 for further details.

Felixstowe Branch Capacity Appraisal Report Page 7 of 26 Table 3.1: Total initial capital costs (with breakdown of funding by source) Option £m Total initial capital costs 47.0

Option S1 Breakdown by funding source % of total SFN (public funds - central government) 85% Developer contribution from the port (private sector) 15% Notes The above costs are the costs for appraisal purposes only and are consistent with an Anticipated Final Cost (AFC) of £60.4m, of which £52.4m is funded by the SFN and £8m is funded by the developer contribution from the port (linked to a S106 agreement for the port development). The above costs are based on the Estimate (issued 24th February 2017) but exclude the following elements: sunk costs (of £6.66m), the QRA-based risk allowance (of £6.25m) and the inflation allowance (of £0.48m). These elements are excluded but the appraisal applies optimism bias and RPI growth relative to the GDP deflator, as noted below. 26% of the above total costs are assumed to be incurred in 2017, 63% in 2018 and 11% in 2019. Source: Authorisation paper, issued 12th April 2017. The above costs are in 2016 factor prices and are at GRIP stage 3 (source: Estimate, as above). They are undiscounted and exclude optimism bias. No real terms changes in costs are applied to the above costs during the appraisal period, except for forecast changes in RPI relative to the GDP deflator and optimism bias (see below). The PVs of the initial capital costs to the SFN and of the developer contribution are shown in Table 3.9. They include optimism bias of 40% and the factor to market price adjustment of 19% and are discounted (see Table A.1). Costs are relative to the Base Case. Initial capital costs only (renewal costs are excluded). Costs are shown as positive.

Renewal costs Renewal costs are shown in Table 3.2. The PV of these costs is shown in Table 3.9 (PV £10.6m). These costs include OB (as noted in Table 3.2) and various other adjustments, in line with WebTAG. These costs are assumed to be at the equivalent of GRIP 1 for optimism bias purposes, so 66% OB was applied. This is a higher rate than is applied to the initial capital costs (40% at GRIP 3) to reflect the greater uncertainties about these costs, as agreed with the Project Team. As advised by the Project Team, there are potential renewal cost savings from this scheme, but it has not been possible to estimate them at this stage.

Felixstowe Branch Capacity Appraisal Report Page 8 of 26 Table 3.2: Renewal costs Option £m Option S1 Additional renewal costs 21.5 Notes The above costs are assumed to be 40% of the initial capital costs (including sunk costs). 50% of these costs (i.e. 20% of the initial costs) are assumed to be incurred after 25 years (2044) and 50% (20% of the initial costs) after 50 years (2069). These are high-level assumptions which have been agreed with the Project Team and are consistent with the F2N Strategic Business Case (2014). The above costs are in 2016 factor prices, are assumed to be at GRIP stage 1, are undiscounted and exclude optimism bias. No real terms changes in costs are applied to the above costs during the appraisal period, except for forecast changes in RPI relative to the GDP deflator and optimism bias (see below). The PV of the renewal costs is shown in Table 3.9. This include optimism bias of 66% and the factor to market price adjustment of 19% and are discounted (see Table A.1). Costs are relative to the Base Case. Costs are shown as positive; cost savings as negative.

3.2.2 Operating costs Extra operating costs are shown in Table 3.3. The extra costs are restricted to extra NR maintenance and signalling costs. This represents a conservative assumption for this appraisal, since no allowances has been made for extra revenue to the rail industry which is likely to offset these costs. Also no allowance has been made for extra operating costs to TOCs, which would offset this extra revenue. The PV of these NR operating costs is shown in Table 3.9 (PV £14.2m). These costs include OB (as noted in Table 3.3) and various other adjustments, in line with WebTAG. These costs are assumed to be at the equivalent of GRIP 3 for OB purposes, so 1% OB was applied. A sensitivity test was carried out to assess the impact of applying a GRIP 1 level of OB (41%) – see Section 3.4. As noted in Table A.1, no real terms increases in these costs were assumed during the appraisal period. An increase to reflect real terms increases in labour costs was considered, but it was viewed that efficiency savings, as a result of the Digital Railway and other initiatives, were likely to offset any labour cost increases over the appraisal period. The Digital Railway aspects of this scheme are discussed in Section 2.

Felixstowe Branch Capacity Appraisal Report Page 9 of 26 Table 3.3: Operating costs £ per Option Type of cost annum Option S1 NR operating costs 600,000 Notes The above costs comprise additional maintenance costs (£350,000 per annum) and additional signalling costs (£250,000 per annum). Source: Project Team. The above costs are in 2016 factor prices, are assumed to be at GRIP stage 3 and refer to the first full year of benefits; they are undiscounted and exclude optimism bias (see below). No real terms changes in costs are applied to the above costs during the appraisal period, except for forecast changes in RPI relative to the GDP deflator. This reflects uncertainty about future costs in the context of the Digital Railway (see Section 2). The PVs are shown in Table 3.9 and include optimism bias at 1% and the factor to market price asjustment of 19% and are discounted (see Table A.1). Costs are relative to the Base Case. Costs are shown as positive; cost savings as negative.

3.2.3 Freight benefits The freight benefits included in this appraisal reflect the benefits associated with the additional rail freight resulting from the scheme and the associated “mode shift benefits” – the benefits of transferring freight from road to rail in terms of a reduction in the number of lorries on the roads. These benefits depend on the number of extra freight trains which are expected to operate as a result of this scheme. This depends on the capacity increases from the scheme and forecast increases in demand, which are addressed in turn.

Capacity increases The latest capacity analysis report (Felixstowe Branch Line Stage 2 report, by Ed Jeffery Ltd, issued 8th March 2017), estimates the capacity under various scenarios including “Package 2”, which relates to Option S1. Package 2 includes the following “larger interventions”: the Felixstowe scheme, the retiming of existing freight trains on the branch and the recasting of the timetable in the Ipswich area i.e. the re-timing of passenger services on the Felixstowe line and on the Lowestoft line (see Table 1 in the report). Since the benefits from the retiming of existing freight trains on the branch and the recasting of the timetable in the Ipswich area are only available as a result of the scheme, they can be considered as part of the benefits of the scheme, as agreed with the Project Team.

Felixstowe Branch Capacity Appraisal Report Page 10 of 26 The capacity estimates for the package assume that various “more localised interventions” occur as well the “larger interventions” referred to above. These more localised interventions are listed in the report’s Executive Summary and include the following:

 Providing additional signals between Trimley and Derby Road as part of the Felixstowe scheme;

 Reducing headways between Ely and Ely North Junction for freight from 6 to 3 minutes;

 Ely area level crossing works; and

 Moving the whole cross-country route to an hourly standardised timetable pattern based around passenger and intermodal freight.

The Project Team has confirmed that the additional signals between Trimley and Derby Road are included within the scope of the Estimate issued 24th February 2017, and are therefore included in the costs used for this appraisal (see Table 3.1).

The other interventions involve both timetable and infrastructure interventions. The Project Team has advised that it is not possible to confirm the need for these infrastructure interventions to deliver the benefits of Package 2 – or their cost – at this stage (e.g. the cost of reducing the freight headways in the Ely area - which may include bridge strengthening works to increase linespeeds - and the cost of possible level crossing works in the Ely area). However, the need for these interventions – and their cost - will be reviewed as part of GRIPs 5 to 8 of this scheme (the Felixstowe scheme) and if additional costs (and/or a reduction in benefits) are required, this business case will be updated accordingly. See Section 3.4 below re. scheme and appraisal risks.

Package 2 (Option S1) is estimated in the report to provide at least 37 freight train paths per day in each direction. This represents an increase of four paths per day relative to current capacity of 33 paths per day, as agreed with the Project Team.

The capacity estimate for Package 2 (and the other packages) takes account of capacity constraints elsewhere on the “line of route” to Nuneaton (via Peterborough) or Wembley (via London), as noted in the Executive Summary of the report.

Forecast growth Extra freight on the network will only result from the scheme if the capacity increases are accompanied by growth in freight volumes. Figure 1 shows various forecast scenarios and compares them with the capacity increases from this scheme i.e. under Option S1 relative to the Base Case (the extra four paths per day referred to above). Under all the forecast scenarios shown in Figure 1, the forecast growth easily exceeds the capacity increase under Option S1 (relative to the Base Case). Therefore the capacity increases from the scheme (i.e. four extra paths per day) can be expected to result in the same increase in rail freight on the network – they do not need to be reduced to take account of the forecasts. The four freight forecasting scenarios shown in Figure 1 are as follows:

Felixstowe Branch Capacity Appraisal Report Page 11 of 26  Scenario 1 (SCEN1): growth in intermodal traffic on the Felixstowe branch under the Freight Market Study’s (FMS) central case scenario forecast.  Scenario 2 (SCEN2): growth in intermodal traffic on the Felixstowe branch under the FMS’s lower scenario forecast.  Scenario 3 (SCEN3): a further lower scenario forecast, as SCEN1, except with growth reduced by 50%.  Scenario 4 (SCEN4): a further lower scenario forecast, as SCEN2, except with growth reduced by 50%. The FMS forecasts were published by NR in 2013, using a 2011/12 base year. Based on the FMS, central case and lower (and higher) scenario forecasts are available for 2023, 2033 and 2043. Only the 2023 and 2033 forecasts / scenarios are shown in Figure 1. Forecasts for intermediate years are based on interpolation. The forecasts are unconstrained – they do not take account of capacity constraints on the network, including those on the Felixstowe branch. These forecasts (particularly the central case forecasts) now appear to be optimistic, due to weak trade growth and other factors which disfavour rail freight (such as falls in fuel prices). However significant growth is still expected by 2023 and 2033. Scenario 3 or Scenario 4 (showing half the growth of the central case or lower scenario) may be more realistic now. Figure 1 shows that even under Scenario 4, forecast growth easily exceeds the capacity increases expected to result from this scheme.

Figure 1: Comparison of forecast growth under four scenarios with capacity increases under Option S1

Note: Figure 1 does not show any increases in capacity under the Base Case. Although there have been some increases in paths per day in the working timetable since 2011, there have been insignificant changes in “technical capacity” over this period, as defined in the capacity analysis report (i.e. capacity based on modelling of the application of train planning rules and capacity allowances etc).

Felixstowe Branch Capacity Appraisal Report Page 12 of 26

Extra rail freight As discussed above, the capacity increases from the scheme Option S1 (four extra paths per day), can be expected to result in the same increase in rail freight on the network – they do not need to be reduced to take account of the forecasts. Under the Base Case, the equivalent amount of freight is assumed to be transported by road. The extra rail freight on the network resulting from the scheme, relative to the Base Case, is summarised in Table 3.4. As noted above, the capacity increases under Option S1 take account of capacity constraints on the lines of route, not just on the Felixstowe branch. Therefore the extra trains in Table 3.4 can be assumed to be able to run to their final destinations, not just on the branch.

Table 3.4: Additional freight train paths per day Option Flow 2022 Option S1 All flows 4.0 Notes 2022 is first full year of benefits. Benefits are phased in over three years, with one-third of these benefits in 2020 (the first year of benefits - see Table A.1) and two-thirds in 2021. The same benefits apply from 2022 until the last year of benefits, 2079. Additional flows refer train paths per day in each direction. Additional flows refer to Option S1 relative to the Base Case. Source: see Section 3.2.

The destination of these extra trains is shown in Table 3.5. The main destinations are the East Midlands and the West Midlands.

Felixstowe Branch Capacity Appraisal Report Page 13 of 26 Table 3.5 Distribution of additional freight trains by flow Option Flow % of total Option S1 Felixstowe to East Midlands (Daventry) 25.6% Felixstowe to East of England (Gateway) 1.4% Felixstowe to North East (Teesport) 3.7% Felixstowe to North West (Manchester) 15.7% Felixstowe to South East (Slough) 9.8% Felixstowe to South West (Avonmouth) 7.4% Felixstowe to Wales (Wentloog) 2.7% Felixstowe to West Midlands (Birmingham) 18.7% Felixstowe to Yorkshire & Humber (Wakefield) 15.0% Total 100.0% Notes The distribution of the additional freight trains by flow is based on the origins/destinations of the forecasts for the Freight Market Study (FMS). Specifically the forecasts to 2023 under the lower scenario were used. Origins/destinations are grouped by region and a representative location for each region was used for the derivation of the MEC - see below. This location is shown in brackets. The locations were based on previous F2N business case work. No additional freight flows apply to Scotland under these forecasts - hence not shown.

Mode shift benefits The next stage in the estimation of these benefits is to estimate the benefits of removing a single lorry journey for each of the destinations (flows) discussed above. These benefits are estimated by the Marginal External Costs (MECs) associated with these lorry journeys i.e. the avoidance of these costs. The MECs for 2025 and 2035, as example years, are shown in Tables 3.6 and 3.7. The MECs vary widely between flows, with the highest costs on the flow to the North West. The MECs also increase significantly between 2025 and 2035, mainly due to forecast increases in road congestion.

Felixstowe Branch Capacity Appraisal Report Page 14 of 26 Table 3.6 Marginal External Costs (MEC) per single lorry journey in 2025 Average Total MEC MEC per single Km per benefit per Option Flow journey (£) journey km (£) Option S1 Felixstowe to East Midlands (Daventry) 98.1 240.9 0.41 Felixstowe to East of England (Gateway) 118.8 108.1 1.10 Felixstowe to North East (Teesport) 135.5 437.6 0.31 Felixstowe to North West (Manchester) 135.7 398.0 0.34 Felixstowe to South East (Slough) 115.0 193.6 0.59 Felixstowe to South West (Avonmouth) 112.1 360.8 0.31 Felixstowe to Wales (Wentloog) 115.0 400.4 0.29 Felixstowe to West Midlands (Birmingham) 88.5 268.0 0.33 Felixstowe to Yorkshire & Humber (Wakefield) 99.3 345.2 0.29 Notes Marginal External Costs are net benefits from the removal of lorries from the roads. The HGV MECs shown are for 2025 (for illustration) and are in 2010 prices. HGV MEC benefits comprise road congestion, air pollution, greenhouse gases, infrastructure, accidents, noise, offset by indirect tax costs.

The above MECs also include an estimate of rail environmental costs - see Table A.1 for details. Note: the MEC data from DfT excludes rail envronmental costs. HGV MECs for 2015 and 2035 were provided to NR by DfT in 2014. The data were adjusted by NR to take account of changes to the MECs between 2014 and 2016 (including the November 2016 values of time changes). Data for intermediate years were interpolated, taking account of the growth trajectory provided by DfT for selected flows. For post 2035 growth assumptions see Table A.1. MECs cover A roads and motorways only; therefore total MECs per journey and total journey distance reflect these road types only. Routes were determined using AA's Route Planner.

Table 3.7 Marginal External Costs (MEC) per single lorry journey in 2035 Average Total MEC MEC per single Km per benefit per Option Flow journey (£) journey km (£) Option S1 Felixstowe to East Midlands (Daventry) 185.5 240.9 0.77 Felixstowe to East of England (Gateway) 203.6 108.1 1.88 Felixstowe to North East (Teesport) 271.1 437.6 0.62 Felixstowe to North West (Manchester) 286.0 398.0 0.72 Felixstowe to South East (Slough) 218.6 193.6 1.13 Felixstowe to South West (Avonmouth) 242.3 360.8 0.67 Felixstowe to Wales (Wentloog) 253.1 400.4 0.63 Felixstowe to West Midlands (Birmingham) 166.5 268.0 0.62 Felixstowe to Yorkshire & Humber (Wakefield) 206.8 345.2 0.60 Notes As Table 3.6, except the HGV MECs shown are for 2035, for illustration.

Total mode shift benefits by flow / destination are shown in Table 3.8. As noted in the table, these reflect the total number of lorry journeys removed from the roads as a result of the extra rail freight. Each extra train path is assumed to remove 7,410 return lorry journeys from the roads per annum. The PV of these benefits is shown in Table 3.9 as “non-user benefits”, offset by “indirect taxation cost”. The main non-user benefits are the road decongestion benefits (PV £235.7m). Road infrastructure cost savings (to the public sector) are also significant (PV £42.4m). Other non-user benefits, covering noise, air quality, greenhouse gases and safety benefits (partly offset by rail environmental costs) are also significant (PV £52.7m). The tax costs (PV £68.1m) reflect the loss of road fuel duty revenue (offset by the gain in rail fuel duty). Total net mode shift benefits are PV £262.7m.

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Table 3.8: Mode shift benefits (£ per annum) Option Flow 2025 2035 Option S1 Felixstowe to East Midlands (Daventry) 1,489,000 2,814,000 Felixstowe to East of England (Gateway) 99,000 169,000 Felixstowe to North East (Teesport) 297,000 595,000 Felixstowe to North West (Manchester) 1,263,000 2,662,000 Felixstowe to South East (Slough) 668,000 1,270,000 Felixstowe to South West (Avonmouth) 492,000 1,063,000 Felixstowe to Wales (Wentloog) 184,000 405,000 Felixstowe to West Midlands (Birmingham) 981,000 1,846,000 Felixstowe to Yorkshire & Humber (Wakefield) 883,000 1,839,000 Total 6,356,000 12,663,000 Notes The years shown are for illustration only. The above benefits are in 2010 market prices, are undiscounted and rounded and are based on the benefits shown in above tables. Mode shift benefits are estimated by multipying the number of lorries removed from roads per annum by the MEC benefit per journey (see above table). The number of lorries removed from the roads per annum is estimated by multiplying additional train paths per day (tppd) (see above) by number of return lorry journeys removed from the roads per annum per tppd (estimated at 7410), and by a factor of 2 (since each return trip represents two single trips). The above number of return lorries removed from the roads per annum for each tppd is estimated by multiplying the number of lorries removed from the roads per train (estimated at 28.5), by the average number of days operated per year (260). No increase in the number of lorries removed per train (i.e. average train length) or the number of days operated per year is assumed during the appraisal period, as a conservative assumption. The PVs are shown in Table 3.9 and are discounted (using the discount rates shown in Table A.1). Benefits are for Option S1 relative to Base Case.

3.3 Appraisal results

The results of appraisal under the central case, Option S1, are shown in Table 3.9.

All the costs and benefits are totals over the 60 year appraisal period. They are all expressed in Present Value (PV) terms i.e. they are discounted to 2010 using the DfT’s social time preference rates.

The capital costs consist of the initial capital costs to the SFN (PV £47.7m), the developer contribution (PV £8.3m) and renewal costs (PV £10.6m). Extra operating costs to NR as a result of the scheme are PV £14.2m.

The main benefits of the scheme are freight mode shift benefits – i.e. the social and environmental benefits of reducing the number of lorry journeys on the roads. These are shown in the table as non-user benefits. They consist of road de-congestion benefits (PV £235.7m), road infrastructure cost savings (PV £42.4m) and other net benefits (PV £52.7m). These are partly offset by tax costs (PV £68.1m), which reflect the loss of road fuel duty revenue. Total net mode shift benefits are PV £262.7m.

Felixstowe Branch Capacity Appraisal Report Page 16 of 26 The Benefit Cost Ratio to Government (BCR) is 7.0. The net benefits to consumers and the private sector (the numerator in this ratio) exceed the net costs to government (the denominator) by a factor of 7. This represents a very high value for money (VfM) scheme under DfT criteria, since the BCR exceeds 4.

Table 3.9 also shows that the Net Present Value (NPV) is £180.5m. This indicates that total benefits exceed total costs by this amount. This supports the VfM conclusion. The Transport Economic Efficiency (TEE) tables and Appraisal Summary Table (AST) are shown in the appendix. Although Table 3.9 focusses on socio-economic costs and benefits, it addresses some costs and benefits which are relevant to the financial case. In particular, the capital costs, the operating costs and the road infrastructure cost savings. These are discussed in Section 4.

Table 3.9: Results of socio-economic appraisal Option S1 £m PV Net benefits to consumers and private sector (plus tax impacts) Non user benefits - road decongestion 235.7 Non user benefits - noise, air quality, greenhouse gases & safety benefits 52.7 less rail environmental costs Rail user and non user disruption disbenefits during possessions -1.4 Developer contribution from the port -8.3 Indirect taxation impact on government -68.1 sub-total (a) 210.7

Costs to government (broad transport budget) Initial capital costs funded by SFN 47.7 Renewal costs 10.6 Non user benefits - road infrastructure cost savings -42.4 NR operating costs 14.2 sub-total (b) 30.1

Net Present Value (NPV) (a-b) 180.5 Benefit Cost Ratio to Government (BCR) (a/b) 7.0 Notes: Present Values (PVs) are in 2010 market prices and are discounted to 2010 using Social Time Preference discount rates: see Table A.1. The appraisal is in accordance with the DfT's WebTAG appraisal guidance. Results are shown for the relevant option/scenario etc relative to the Base Case. For net benefits etc, benefits are shown as positive. For costs to government etc, costs are shown as positive. This is a summary version of the TEE tables.

Felixstowe Branch Capacity Appraisal Report Page 17 of 26 3.4 Sensitivity analysis and risks Sensitivity tests Three sensitivity tests have been carried out. These are summarised in Table 3.10.

Table 3.10: Description of sensitivity tests Test Description S1 SEN1 As Option S1 except with freight benefits reduced by 25%. S1 SEN2 As Option S1 except assuming that the extra operating costs are at the equivalent of GRIP 1 estimates (instead of GRIP 3). This increases the level of optimism bias applied to operating costs. S1 SEN3 As Option S1 except that the total initial capital costs include sunk costs.

The results of these tests are summarised in Table 3.11. The table also shows the results for Option S1, for comparison. Under all these sensitivity tests, the BCR remains above 2; the scheme therefore still represents high VfM. The results are most sensitive to the reduction in freight benefits (see S1 SEN1). S1 SEN3 is relevant because it indicates that the scheme represents high VfM even if sunk costs (estimated at c. £6.7m) are included. The tests are discussed further in the next section.

Table 3.11: Results of sensitivity tests (and Option S1) Option S1 S1 SEN1 S1 SEN2 S1 SEN3 £m PV £m PV £m PV £m PV Net benefits to consumers and private sector (plus tax impacts) Non user benefits - road decongestion 235.7 176.8 235.7 235.7 Non user benefits - noise, air quality, greenhouse gases & safety benefits 52.7 39.6 52.7 52.7 less rail environmental costs Rail user and non user disruption disbenefits during possessions -1.4 -1.4 -1.4 -1.4 Developer contribution from the port -8.3 -8.3 -8.3 -8.5 Indirect taxation impact on government -68.1 -51.1 -68.1 -68.1 sub-total (a) 210.7 155.6 210.7 210.5

Costs to government (broad transport budget) Initial capital costs funded by SFN 47.7 47.7 47.7 55.9 Renewal costs 10.6 10.6 10.6 10.6 Non user benefits - road infrastructure cost savings -42.4 -31.8 -42.4 -42.4 NR operating costs 14.2 14.2 19.9 14.2 sub-total (b) 30.1 40.7 35.8 38.3

Net Present Value (NPV) (a-b) 180.5 114.8 174.9 172.2 Benefit Cost Ratio to Government (BCR) (a/b) 7.0 3.8 5.9 5.5 Notes: Present Values (PVs) are in 2010 market prices and are discounted to 2010 using Social Time Preference discount rates: see Table A.1. The appraisal is in accordance with the DfT's WebTAG appraisal guidance. Results are shown for the relevant option/scenario etc relative to the Base Case. For net benefits etc, benefits are shown as positive. For costs to government etc, costs are shown as positive. This is a summary version of the TEE tables.

Felixstowe Branch Capacity Appraisal Report Page 18 of 26 Scheme and appraisal risks

The appraisal (including the above sensitivity tests) has identified a number of risks, as follows.

 The risk that the capital costs of the scheme will exceed the AFC of £60.4m – see Table 3.1. This is addressed by applying optimism bias of 40% to the scheme costs for appraisal purposes (i.e. the £47.0m figure in Table 3.1, which excludes sunk costs and risk). The results of Option S1 indicate that even if these capital costs increased to £65.8m (i.e. £47.0m multiplied by 1.4) the BCR would still exceed 4. Note: the £65.8m figure is equivalent to an AFC of c. £72m, after adding sunk costs of c. £6.7m.

 The risk that the freight benefits will not be realised in full. This could be due, for example, to rail freight demand growth being much less (more than 50% less) than forecast and/or due to capacity constraints on the network which were not addressed in the capacity analysis work and/or due to the MECs being lower than forecast (for example due to road congestion being lower than forecast). S1 SEN1 reduces these benefits by 25% and the BCR still exceeds 2.

 The risk that the “more localised interventions” listed in the capacity analysis report will result in a requirement for significant additional costs and/or a reduction in benefits, which are not reflected in this business case. These interventions are discussed in Section 3.2.3 above and include the requirements to reduce freight headways in the Ely area and for level crossing works in the same area. This risk is addressed (at least to some extent) by the first risk above (re. capital costs) and the second risk (re. freight benefits).

 The risk that NR operating costs will be higher than estimated. S1 SEN2 applies optimism bias of 41% (at GRIP 1) rather than 1% (at GRIP 3). Even with this extra OB, the BCR exceeds 4.

Of these risks, the most significant probably relates to the risk that the requirements for a reduction in freight headways in the Ely area and for level crossing works in the same area will result in significant additional capital costs and/or significant reduced benefits, relative to the costs / benefits which are included in this appraisal. These potential extra costs or reduced benefits will be assessed by the Project Team and the business case will be updated as necessary.

Felixstowe Branch Capacity Appraisal Report Page 19 of 26 3.5 Conclusions on economic case The main benefits of the scheme are the environmental and social benefits associated with reducing the number of lorry journeys on the roads. These benefits are compared with the capital and operating costs of the scheme over the 60 year appraisal period. The main result of the appraisal is that Option S1 (as defined in this appraisal) has a BCR of 7.0, which represents very high VfM. Various scheme and appraisal risks have been identified in this appraisal. These include the risk that the requirements for a reduction in freight headways in the Ely area and for level crossing works in the same area will result in significant additional capital costs and/or a significant reduction in benefits. These requirements were identified in the latest capacity analysis report. These potential costs and/or reduced benefits will be assessed by the Project Team and the business case will be updated if necessary.

Felixstowe Branch Capacity Appraisal Report Page 20 of 26 4. The financial case

4.1 Introduction

This section summarises the main financial costs and benefits which have been addressed in the socio-economic business case – see Section 3.

4.2 Costs and funding sources

The initial capital costs and proposed funding sources are shown in Table 3.1.

The extra renewal costs are shown in Table 3.2.

The extra NR operating costs are shown in Table 3.3.

4.3 Benefits and cost savings The road infrastructure cost savings to the Government are shown in PV terms in Table 3.9.

Felixstowe Branch Capacity Appraisal Report Page 21 of 26 Appendix

This section includes the following further information on the appraisal:  Table A.1, further information on appraisal assumptions;  Transport Economic Efficiency (TEE) tables for Option S1; and  Appraisal Summary Table (AST) for Option S1.

Felixstowe Branch Capacity Appraisal Report Page 22 of 26 Table A.1: Further appraisal assumptions Assumptions apply to central case (Option S1) unless stated. Further assumptions are in tables in main text. All years refer to financial years e.g. 2017 refers to 2017/18 F/Y. Assumption Value Source Comment General assumptions: Current year 2017 WebTAG Model base year 2017 WebTAG First year of benefits 2020 Project Team Benefits are phased in from 2020 to 2022 - see Table 3.4. Benefits profile by year % of total 2020 100% Project Team 2079 100% Project Team Appraisal period (years) 60 Project Team The maximum is 60 years under WebTAG Price base year 2010 WebTAG (Unit A1.1, Values converted from Para 2.6.3) model base year to price base year using GDP deflator Base year for discounting 2010 WebTAG (Unit A1.1, Para 2.7.6) Discount rate (Social Time Preference 3.5% for 30 years from WebTAG (data-book- Rate) the current year and March-2017, Table 3.0% thereafter A1.1.1) & HM Treasury Green Book Unit of account Market prices WebTAG (Unit A1.1, 19% added to convert Para 2.5.2) factor prices to market prices Capital and operating cost assumptions: Changes in capital costs in real terms Not applied except for during appraisal period forecast increases in RPI relative to the GDP deflator (capped in 2037 after 20 years, in line with WebTAG) Changes in operating costs costs in real Not applied except for terms during appraisal period forecast increases in RPI relative to the GDP deflator (capped in 2037 after 20 years, in line with WebTAG) Optimism bias for: Initial capital costs 40% at GRIP stage 3 WebTAG (Unit A5.3, Optimism bias is added Table 3) to the relevant costs Renewal costs 66% at GRIP stage 1 WebTAG (Unit A5.3, Table 3) Operating costs 1% at GRIP stage 3 WebTAG (Unit A5.3, Table 3)

Felixstowe Branch Capacity Appraisal Report Page 23 of 26 Table A.1: Appraisal assumptions (continued) Freight benefit-related assumptions HGV MEC growth rates after 2035 Accidents Values at GDP per DfT capita growth, quantities at no change Noise Values at GDP per DfT capita growth, quantities at no change Pollution Values at GDP per DfT capita growth, quantities at no change Climate change Values in line with WebTAG The same price applies central projection for (data_book_March- to traded and non- price of carbon, 2017, Table A3.4) traded price of carbon quantities at no change Infrastructure costs No change in values or DfT quantities Road congestion Values at GDP per DfT capita growth, quantities at no change Indirect taxation Values at GDP per DfT capita growth, quantities at no change Rail environmental costs as % of road 33% This is a conservative estimate of the relationship environmental costs (i.e. HGV MECs for between rail and road environmental costs. For noise, pollution and greenhouse gases) carbon emissions, for example, rail emissions are estimated at 24% of road emissions per tonne km (source: "Value and importance of rail freight", NR, 2010). The same proportion is applied throughout the appraisal period.

Other assumptions Network Rail operating costs All NR operating costs are treated as central government costs Disruption during construction: Schedule 4 costs as a proportion of 3% Derived from Estimate investment cost (issued 24th February 2017). User disbenefits as a proportion of revenue 100% Economic Analysis User & non-user disbenefits (i.e. Schedule 4) Team assumption benefits are increased Non user disbenefits as a proportion of 25% Economic Analysis to allow for factor to revenue disbenefits Team assumption market price adjustment.

Felixstowe Branch Capacity Appraisal Report Page 24 of 26 TEE tables - Felixstowe Branch Capacity Enhancements Option S1 Table 1: Economic Efficiency of Transport System (All costs & disbenefits are negative, all benefits & savings are positive) Rail infra- Rail Total in 2010 Cars, LGVs & structure - passengers, price base £ goods vehicles Bus & Coach Rail Total Network Rail TOCs Non-business commuting benefits Travel time saving 58,935,797 58,935,797 0 0 Vehicle operating costs 0 0 User charges 0 0 During construction & maintenance -348,832 -69,766 -279,065 -279,065 Net (1a) 58,586,965 58,866,030 0 -279,065 0 -279,065 Non-business other benefits Travel time saving 58,935,797 58,935,797 0 0 Vehicle operating costs 0 0 User charges 0 0 During construction & maintenance -348,832 -69,766 -279,065 -279,065 Net (1b) 58,586,965 58,866,030 0 -279,065 0 -279,065 Business benefits Business user benefits Travel time saving 117,871,593 117,871,593 0 0 Vehicle operating costs 0 0 User charges 0 0 During construction & maintenance -697,663 -139,533 -558,131 -558,131 Net (2) 117,173,930 117,732,061 0 -558,131 0 -558,131 Private sector provider impacts Revenue 0 0 0 Opcost 0 0 0 Private sector contribution to investment cost 0 0 0 Revenue transfer (0% to government) 0 0 0 Opcost transfer from TOCs (0% to government) 0 0 0 Sub total (3) 0 0 0 0 0 0 Other business impacts Developer contribution (4) -8,348,438 -8,348,438 Net business impact (5 = 2+3+4) 108,825,492 117,732,061 0 -8,906,569 Total, PV of transport econ eff. benefits (6 = 1a+1b+5) 225,999,422 1(a), 1(b) and (5) flow into the AMCB table, not (6)

Table 2 Public Accounts (costs should be recorded as a positive number, surpluses as a negative one) All Modes Road Total Infrastructure Bus & Coach Rail Local Government funding Revenue 0 Operating costs 0 Investment costs 0 Grant/subsidy: Public funds - local government (b) 0 0 Revenue transfer 0 Net (7) 0 0 0 0 General Government funding: transport Revenue 0 NR operating costs 14,224,862 14,224,862 Investment costs (a) 66,658,658 66,658,658 Grant/subsidy: Public funds - local government (b) 0 0 Developer contribution from Felixstowe port(c) -8,348,438 -8,348,438 Private sector contribution to investment cost (d) 0 0 Net investment costs to central govt (= a-b-c-d) 58,310,220 58,310,220 Revenue transfer (0% to government) 0 0 Opcost transfer from TOCs (0% to government) 0 0 Infrastructure cost savings -42,410,046 -42,410,046 Net (8) 30,125,036 0 0 72,535,082 General Government funding: non-transport Indirect Tax Revenues (9) 68,076,889 68,076,889 0 Totals Broad transport budget (10=7+8) 30,125,036 * These costs exclude developer contributions Wider public finances (11=9) 68,076,889

Table 3: Analysis of Monetised Costs and Benefits (AMCB) Noise 19,631,676 Local air quality 431,215 Greenhouse gases 36,308,803 Rail environmental costs -18,602,659 Journey ambience (inc. station amenity and crowding 0 Accidents (incl. safety) 14,979,886 Consumer users (sub-total 1a+1b, Table 1) 117,173,930 Business users and providers (sub-total 5, Table 1) 108,825,492 Reliability (including performance) 0 Option values 0 Wider public finances (indirect taxation revenues) (sub-total -68,076,889 Sign changed from Table 2 11) PV of Benefits (a = sum of all benefits) 210,671,454 Broad transport budget (sub-total 10) 30,125,036 From Table 2 PV of Costs (b = 10) 30,125,036 Overall impacts NPV (a-b) 180,546,418 BCR (a/b) 6.99

Felixstowe Branch Capacity Appraisal Report Page 25 of 26 Appraisal Summary Table Date produced: 17 05 17 Contact: Name of scheme: Felixstowe Branch Capacity Enhancements Name David Harley Description of scheme: See report (Option S1) Organisation Netw ork Rail Role Analyst Impacts Summary of key impacts Assessment Quantitative Qualitative Monetary Distributional £(NPV) 7-pt scale/ vulnerable grp Business users & Road de-congestion benefits to w ork time Value of journey time changes(£) transport providers road users and the cost of the developer Net journey time changes (£) contribution are included. 108,825,492

0 to 2min 2 to 5min > 5min Economy N/A N/A N/A Reliability impact on No significant change. 0 Business users Regeneration No significant change. Wider Impacts No significant change. Noise Benefits related to modal shift are included. 19,631,676

Air Quality Benefits related to modal shift are included. 431,215 Greenhouse gases Benefits related to modal shift are included. Change in non-traded carbon N/A over 60y (CO2e) 36,308,803 Change in traded carbon over Environmental N/A 60y (CO2e) Landscape No significant change. Tow nscape No significant change. Heritage of Historic No significant change. resources Biodiversity No significant change. Water Environment No significant change. Rail environmental Disbenefits related to modal shift are -18,602,659 costs included. Commuting and Other Road de-congestion benefits to non w ork Value of journey time changes(£) users time road users are included. Net journey time changes (£) 117,173,930 Social 0 to 2min 2 to 5min > 5min N/A N/A N/A Reliability impact on No significant change. Commuting and Other 0 users Physical activity No significant change. Journey No significant change. 0 quality/ambiance Accidents Benefits related to modal shift are included. 14,979,886 Security No significant change. Access to services No significant change. Affordability No significant change. Severance No significant change. Option values No significant change. Cost to Broad Capital costs to government, operating Transport Budget costs to government and road -30,125,036

Public infrastructure cost savings to government

(associated w ith modal shift) are included. Accounts Indirect Tax Tax costs (associated w ith modal shift) are -68,076,889 Revenues included.

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