The business case analysis of ERTMS deployment across the Core Network Corridors (CNC)
As part of its work, the Deployment Management Team is tasked with performing the economic analysis of ERTMS deployment along the 9 Core Network Corridors, investigating the related costs and estimating the benefits which the technology can bring to the European rail sector as a whole. In this respect, a business case analysis on the installation of ERTMS on the 9 Core Corridors has been performed and was published in 2019.
The business case has been developed in order to:
- Fill in the knowledge gap with an economic analysis taking into account the European railway system as whole with a corridor approach, beyond the existing national analysis;
- Analyse the economic benefits of a coordinated ERTMS deployment in line with the Breakthrough Programme and the European Deployment Plan, in order to also ensure a better planning of financial resources;
- Provide a robust economic evaluation of a major and long-term investment programme available to the Commission, the Member States and the rail industry.
The business case analysis is based on some key concepts:
- A Core Network Corridor (CNC) level analysis, the business case is based on benefits and costs at CNC level. The outcome may then differ from a pure Member State’s perspective.
- A railway system perspective, where costs and benefits are considered from a sector-integrated point of view, including overall trackside deployment and vehicle fleet equipment, and not at the level of individual types of stakeholders (RUs, IMs, suppliers, Member States).
- A differential approach, comparing situations “without ERTMS” and “with ERTMS” analysed in the 3 different scenarios of estimates and ERTMS deployment from 2016 to 2045:
- S0 Patchy deployment, which assumes that there is absolutely no coordination between stakeholders, both “vertically” (stakeholders of different “nature” working on the same geographical scope) and “horizontally” (stakeholders of the same nature working on different geographical scopes);
- S1 Conservative scenario, the base case where assumptions and estimates are used as provided by stakeholders’ inputs and current practice/experience with ERTMS deployment investments;
- S2 Ambitious scenario, the target case where some new assumptions are included and where the S1 assumptions are considered more favourably based on the expected positive effects of the Breakthrough Programme and the stakeholders’ expectations;
- S3 Fully interoperable Level 2 network scenario, where the effect of a full trackside deployment of only ERTMS Level 2 is tested compared to the S2 scenario.
- Multiple discussions with rail industry stakeholders, where, through individual interviews, meetings at the sector’s associations, targeted consultations and workshops, data and information have been collected, analysed, discussed, fine-tuned and validated for the business case analysis and the underlining calculation.
Key findings of the analysis are summarised below:
- There is a positive business case for ERTMS on all core network corridors. ERTMS generates a positive internal rate of return from an overall railway system perspective on each of the Core Corridors and for Europe as whole.
- Coordinated deployment and dual onboard strategy are vital to achieve those results
As shown in the figure below, ERTMS deployment requires the coordination of all stakeholders across and within Member States (onboard and trackside deployment together; infrastructure completed etc.). Without coordination, benefits disappear (scenario 0 – patchy deployment).
Moreover, the analysis also showed that the dual onboard strategy on the core network corridors has a better economic outcome, as benefits appear earlier than in the dual trackside strategy.
- There is strong rationale for EU support to ERTMS deployment which is facing important funding gaps
For the infrastructure, prioritisation of EU funding for ERTMS deployment should focus (i) on deployment-important parts of the network, which may not be national priorities (typically cross-border sections); (ii) on closing gaps to allow continuous operation on longer stretches of the network with ERTMS only; and (iii) on the deployment of ERTMS on main rail nodes and terminal connections.
For onboard, there remains a strong rationale for EU, national and regional-level support to remove the "system" deployment bottleneck of equipping fleets. It is vital to provide an enhanced assistance for the renewal of fleets or support for the retrofitting and upgrading of onboard units to deliver overall system benefits. From an EU perspective, this is particularly the case for international and freight operators, who tend to be least well-served by national schemes for retrofitting.
- Capacity of the industry to deliver will be critical for the project’s success
But there still is a lot to be done: more than 45,000 km of tracks and between 24,000 and 35,000 vehicles will have to be equipped by 2030. This represents a huge challenge for all stakeholders: infrastructure managers and railway undertakings, suppliers, ERA and third party assessors.
Through the Connecting Europe Facility (CEF) for Transport instrument, the EU puts grants at the disposal of Member States, local governments, RUs and IMs, to support the deployment of ERTMS along the Corridors. Stakeholders can apply for funding through competitive calls managed by the INEA Executive Agency.
The EU allocations for ERTMS during the 2007-2013 period amounted to approximately EUR 1.2 billion (EUR 645 million from the TEN-T programme and EUR 570 million from Cohesion/ESIF funding) and during the current financial perspective (2014-2020) to EUR 2.7 billion (EUR 850 million from the CEF programme and EUR 1.9 billion from the Cohesion/ESIF funds). In addition, EUR 149 million was made available for ERTMS deployment under the CEF Blending Facility and the CEF reflow call.
Additional financial possibilities and innovative financial schemes were developed more recently at EU level to speed up the deployment.
In the next multi-annual programme (the Connecting Europe Facility 2021–2027 Regulation), rail transport continues to be a funding priority, as the focus in transport shifts to making transport connected, sustainable, inclusive, safe and secure. The proposed transport budget consists of three parts. Funds are available under the general transport envelope (EUR 12.8 billion) and the Cohesion Fund envelope (EUR 11.3 billion). Cohesion and European Regional Development Funds will continue to play their role in financing ERTMS projects in eligible Member States and regions.
Finally, ERTMS could also benefit from the InvestEU Programme, whose objective is to provide a simplified and streamlined investment support with just one set of rules and procedures and one point of contact for advice. The policy areas for sustainable infrastructure (EUR 11.5 billion) and research, innovation and digitalisation (EUR 11.25 billion) especially are potentially of interest for the financing of railway projects.
ERTMS Innovative financing
Based on the positive experience of the Blending Call, a new instrument called CEF Blending Facility was released in 2019. It is a mix of CEF grants / debt instruments paired with financing from the EIB or national promotional banks (so-called implementing partners). There are several rolling deadlines, unlike a CEF call, with the facility remaining open as long as funds are available, allowing project promoters to submit their applications once ready and sufficiently mature.
One key principle of the Blending Facility is that EU grants must be combined with other sources of financing such as equity or debt. Blending can significantly reduce the riskiness of projects for other investors and enables the mobilisation of private capital. Moreover, the involvement of financial institutions (‘Implementing Partners’), such as the European Investment Bank (EIB) or national promotional banks, is mandatory to ensure the financial maturity of projects before they are submitted to the Innovation and Networks Executive Agency (INEA).
Finally, this type of EU support is based on a new concept of ‘unit contribution’ instead of ‘eligible cost’. Compared to the 'traditional' system of calculating the grant based on a detailed budget of actual eligible costs per each cost category, a unit contribution shortens the time needed to establish grant amounts. It also implies additional simplifications at beneficiary level both in terms of application and reporting requirements. Furthermore, it decreases the workload for the final closure of projects and consequently speeds up payment procedures. The use of simplified forms of grants for ERTMS deployment actions may reduce the risks of irregularities and fraud. Reporting and control on ERTMS deployment actions will focus on the implementation of the supported actions and the achieved outputs rather than on the eligibility of costs incurred, reducing the workload and scope for error of both applicants and INEA.