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Division 2.3.2 Calculation of the economic performance indicators

United Kingdom

Original text. Later amendments are not shown.

The following economic performance indicators (as defined below) are the key indicators of the economic analysis:

  1. (1)

    Economic Net Present Value (ENPV) is the main reference indicator for project appraisal. It is defined as the difference between the discounted total social benefits and costs.

  2. (2)

    For a major project to be acceptable from an economic standpoint the project's economic net present value should be positive (ENPV>0) demonstrating that the society in a given region or country gains from the project because the project's benefits exceed its costs and therefore, the project should be implemented.

  3. (3)

    Economic rate of return (ERR) is the internal rate of return calculated using the economic values and expressing the socio-economic profitability of a project.

  4. (4)

    Economic rate of return should be greater than the social discount rate (ERR>SDR) to justify EU support to a major project.

  5. (5)

    Benefit/Cost ratio (B/C) is defined as the net present value of project benefits divided by the net present value of project costs.

  6. (6)

    Benefit/Cost ratio should be greater than one (B/C>1) to justify EU support to a major project.

The main economic benefits per sector to be considered in the economic analysis are set out in table 1. Additional economic benefits can be added if needed and justified. In some specific cases those benefits may become economic costs e.g. increased vehicle operating costs in certain road projects.

Table 1

Sector/SubsectorEconomic benefits
Water supply and sanitation
  1. (i)

    improved access to drinking water and wastewater treatment services in terms of availability, reliability and quality of the service

  2. (ii)

    improved drinking water quality

  3. (iii)

    improved quality of surface waters and preservation of ecosystem services due to pollution abatement

  4. (iv)

    resource cost savings for both producers and customers

  5. (v)

    improved health

  6. (vi)

    reduction of GHG emissions

Waste management
  1. (i)

    reduction of health and environmental hazards (reduced contamination of air, water, soils)

  2. (ii)

    reduction of landfill space/costs (for waste treatment facilities)

  3. (iii)

    recovery of materials, energy and production of compost (avoided cost of alternative production/generation, including externalities)

  4. (iv)

    reduction of GHG emissions (i.e. CO2, CH4)

  5. (v)

    reduction of visual disamenities, noise and odours

Energy

Energy Efficiency projects

  1. (i)

    energy savings (expressed by the economic value of energy including externalities)

  2. (ii)

    increase of comfort

  3. (iii)

    reduction of GHG and non-GHG emissions

Renewable Energy Sources projects

  1. (i)

    reduction of energy costs for substitution of the energy source e.g. by displacement of fossil fuels alternatives (expressed by the economic value of energy generated by likely displaced alternative, including externalities)

  2. (ii)

    reduction of GHG emissions

Electricity/gas grids and infrastructure

  1. (i)

    increase and diversification of energy supply (value of incremental gas/electricity supplied, including externalities)

  2. (ii)

    increase of security and reliability of energy supply (reduction in supply disruptions)

  3. (iii)

    reduction of energy costs for substitution of the energy source

  4. (iv)

    market integration: variation in surpluses stemming from price alignment effects across places (for transmission) or time (for storage)

  5. (v)

    improved energy efficiency

  6. (vi)

    reduction of GHG and non-GHG emissions

Roads, Railways, Public Transport
  1. (i)

    reduction in generalised costs (for movement of goods/people):

    • time savings

    • vehicle operating costs savings

  2. (ii)

    accident savings

  3. (iii)

    reduction of GHG emissions

  4. (iv)

    reduction of non-GHG emissions (i.e. local air pollution impacts)

  5. (v)

    reduction of noise emissions (e.g. some urban projects)

Airports, Seaports, Intermodal
  1. (i)

    reduction in generalised costs (for movement of goods/people)

    • time savings

    • vehicle operating costs savings

  2. (ii)

    quality of service improvements (e.g. provision of airport contact gates)

  3. (iii)

    reduction of GHG emissions

  4. (iv)

    reduction of non-GHG emissions

  5. (v)

    reduction of noise emissions

Research & Innovation
  1. (i)

    benefits to businesses (establishment of spin-offs and start-ups, development of new/improved products and processes; knowledge spillovers)

  2. (ii)

    benefit to researchers and students (new research, human capital formation, social capital development)

  3. (iii)

    benefits to the general public (reduction of environmental risks, reduction of health risks, cultural effects for visitors)

Broadband
  1. (i)

    Increased take-up and improved quality of digital services, including e-Commerce, for citizens and businesses (especially in rural areas);

  2. (ii)

    Increased take-up and improved quality of digital services, including e-Government and e-Health, for public administration.