Appendix J - Economic Appraisal - South Wales SMP SMP2... · 2012-09-03 · Lavernock Point to St Ann’s Head SMP2 Appendix J: Economic Appraisal J-1 J.1 Approach A review of economic

Lavernock Point to St Ann’s Head SMP2

Appendix J: Economic Appraisal

Contents Amendment Record

This report has been issued and amended as follows:

Issue Revision Description Date Approved by

1

1

0

1

Draft for CSG review

Consultation Draft

30 April 2010

30 July 2010

M Phillips

M Phillips

1 2 Final 20 Jan 2012 M Phillips

Halcrow Group Limited

Burderop Park Swindon Wiltshire SN4 0QD

Tel +44 (0)1793 812479 Fax +44 (0)1793 812089

www.halcrow.com

Halcrow Group Limited has prepared this report in accordance with the instructions of their

client, Swansea and Carmarthen Bay Engineering Group, for their sole and specific use. Any

other persons who use any information contained herein do so at their own risk.

© Halcrow Group Limited 2012



Shoreline Management Plan - Supporting Appendices

This report is one of a series of appendices that provide supporting information to the

Shoreline Management Plan (SMP2). This information has been provided to ensure that the

rationale behind the decision-making process which leads to the preferred SMP2 policies is

clear, transparent and auditable. The SMP2 appendices are as follows:

A: SMP Development Provides an explanation of the SMP2 process, a description of

the policy decision-making process and outlines the

chronology of SMP2 development

B: Stakeholder Engagement Presents the SMP2 stakeholder engagement process along

with all relevant communication. This process is intended to

build trust and understanding between all parties involved in

the formation of an SMP, with the aim of being inclusive,

transparent and appropriate in its methods and application

C: Baseline Process

Understanding

Defines current understanding of how the coast functions,

focussing on information that will inform decisions on future

management of the coast over the SMP timescale to ensure

that policy choices, in terms of coastal processes, are

technically-sound and sustainable. This appendix includes the

following:

- Coastal Process and Shoreline Behaviour of Estuary

Dominated Systems (prepared by Professor Ken Pye)

- Assessment of SMP2 Boundaries

- Defence Assessment

- Marine Aggregates and Port Maintenance Annex

- Marine Renewable Energy Proposals Annex

- Integrated Coastal Zone Management Annex

- No Active Intervention (NAI) and With Present Management

(WPM) Baseline Assessments including NAI Figures (which

define coastal erosion and flood risk)

D: Strategic Environmental

Assessment (SEA) Scoping

Report

Provides the environmental baseline conditions of the study

area against which the effects of the SMP can be assessed

during the SEA. This appendix includes the following:

- SEA Environmental Baseline Report (Theme Review)

- Issues and Objectives Table

- Legislation pertinent to the SEA process

- Sites of Conservation Importance

- List of Consultees

E: Policy Development and

Appraisal

Presents the consideration of generic policy options for each

frontage, identifying possible acceptable policies, and their

combination into ‘scenarios’ for testing. Also presents the

appraisal of impacts upon shoreline evolution and the

appraisal of objective achievement.

F: Preferred Policy Scenario

Testing

Presents policy assessment and appraisal of objective

achievement towards definition of the Preferred Plan, as

presented in the Shoreline Management Plan document.



G: Environmental Report

(Strategic Environmental, SEA)

To fulfil the requirements of the EU Council Directive

2001/42/EC (the Strategic Environmental Assessment Directive).

H: Statement to inform a

Habitats Regulations

Assessment

An assessment of the SMP2 in relation to the UK Habitats

Regulations. This document provides Stage One of the Habitats

Regulations Assessment (HRA).

I: Water Framework Directive

Assessment

An assessment of the potential impacts of the SMP2 with

respect to the Water Framework Directive 2000/ 60/ EC which

provides a framework for the protection of inland surface,

transitional, coastal and ground waters

J: Economic Appraisal Presents the economic analysis undertaken in support of the

Preferred Plan.

K: Policy Sensitivity Analysis A review of the sensitivity of the SMP2 policies with respect to a

range of issues.

L: Metadata and Bibliographic

Database

Provides references for all supporting information used to

develop the SMP for future examination and retrieval.



The structure of the SMP2 documents, and how they relate to each other, is summarised in

the flow chart below.

SMP Development (Appendix A)

Strategic

Environmental

Assessment (SEA)

Scoping Report (Appendix D)

Baseline Process

Understanding

(Appendix C)

Policy Development and Appraisal

(Appendix E)

Preferred Policy Scenario Testing

(Appendix F)

SEA report

(Appendix G)

Habitats Regulations Assessment

(Appendix H)

WFD Assessment

(Appendix I)

Metadata and Bibliographic

Database

(Appendix L)

Policy Sensitivity Analysis

(Appendix K)

Policy Statements

(Main Document)

Stakeholder

Engagement

(Appendix B)

Economic Appraisal

(Appendix J)



Table of Contents

J.1 APPROACH................................................................................................................................1

J.2 USE OF EXISTING INFORMATION .............................................................................................2

J.3 DETERMINING DAMAGES AND BENEFITS ................................................................................3

J.4 FUTURE COASTAL EROSION AND FLOOD RISK MANAGEMENT COSTS.................................6

J.5 ECONOMIC SUMMARY ............................................................................................................7

J.6 SENSITIVITY ANALYSIS – FUTURE SEA LEVEL RISE ...................................................................12



J-1

J.1 Approach

A review of economic viability has been carried out for the Preferred Plan and its associated

policies.

It should be noted that this review is not to establish the economic justification for a scheme

as defined by Defra’s Flood and Coastal Defence Project Appraisal Guidance Note 3:

Economic Appraisal (FCDPAG3). The review instead makes a high level assessment of the

economic robustness of the preferred policies, comparing the expected costs of defence

with the value of assets at risk. The economic review therefore determines whether or not

each policy is:

• Clearly economically viable;

• Clearly not economically viable; or,

• Potentially economically viable (and therefore may be in need of more detailed

assessment at a later date, e.g. as part of a strategic plan, although some

commentary on this is provided within this report).

It must be recognised that the justification for a particular policy is not necessarily dependent

on economic viability based on the benefit-cost ratio alone, as impacts on other benefits

may be considered more important (e.g. holding existing defences to sustain a designated

habitat) and at the high level of analysis undertaken at the SMP stage not all benefits are

able to be evaluated in monetary terms. Although these other benefits have not been

valued in monetary terms, they are taken into account during decision-making by

considering whether they are likely to be sufficient to increase the benefits such that the

benefit-cost ratio would be greater than unity.

In 2007 a project led by WAG made three recommendations with respect to future priorities

for flood risk management investment:

• the basis for assessing priority to be given to schemes should be primarily the numbers

of people affected and the degree of that impact;

• the present rule that schemes must meet a cost benefit ratio of one to one or better

should be relaxed to allow for other qualitative factors to be taken into consideration

where appropriate; and

• future schemes should be prioritised using a new multi-criteria analysis that reflects both

monetarised and non-monetarised impacts.

The WAG Minister for Environment, Planning and Countryside accepted the

recommendations and asked Flood Risk Management Wales and Environment Agency

Wales to implement the first two recommendations with immediate effect. WAG propose to

commission work to develop an appropriate multi-criteria approach to flood and coastal risk

management investment decision making in Wales, informed by the emerging flood and

coastal risk policy framework being developed by Defra in England. There is currently no

recommended WAG guidance with respect to multi-criteria analysis of schemes.

The following sections detail how the high level economic appraisal has been undertaken for

the SMP2. This is followed by a table which provides for each policy unit a summary of the

numerical analysis performed and a statement on the justification for the SMP2 policy.



J-2

J.2 Use of Existing Information

The following datasets were consulted to obtain information for the economic review:

• OS Addresspoint – for property locations;

• www.landregistry.gov.uk – for average property prices;

• The John Nix Farm Management Pocket Book, 40th Edition (2010), September 2009, for

agricultural land values;

• Flood Risk Estimating Guide – for defence costs;

• Appendix C: Baseline Process Understanding – to define area at risk from coastal

erosion; and,

• Environment Agency Wales Flood Map – to define area at risk from coastal flooding.

Environment Agency Wales national data team were unable to provide National Property

Database to Carmarthenshire County Council for use in SMP2 due to third party rights

associated with Ordnance Survey and Valuation Office Agency data. This has limited the

level of detail which can be provided in this appendix.



J-3

J.3 Determining Damages and Benefits

The benefits are the damages averted or delayed by the Preferred Plan, i.e. the difference in

losses between implementing the Preferred Plan and the No Active Intervention (NAI)

scenario.

Since flood modelling data (to a suitable level of detail, including flood depth grid data) or

the National Property Database were not made available for the SMP2 study area it was not

possible to use MDSF to undertake the economic appraisal.

The value of properties at risk, losses and benefits has been calculated on the basis of

residential property values. For each policy unit the number and value of all residential

properties and the number of residents at risk from flooding or erosion in the long term (100

years) has been defined using GIS and provided in Table J.2, based upon the following:

• Estimated average residential property value (Vale of Glamorgan, Bridgend, Neath

Port Talbot, Swansea, Carmarthenshire and Pembrokeshire): £124,000

www.landregistry.gov.uk/ (accessed 23 November 2009);

• The average number of people living in a household in England and Wales: 2.36 (Office

of National Statistics

http://www.statistics.gov.uk/census2001/profiles/commentaries/housing.asp accessed

11 August 2009).

Since the National Property Database was unavailable to the project team due to copyright

issues and due to the wide variation in non-residential property value, which could comprise

a corner-shop or a power station, it has not been possible to provide a value of non-

residential property which is at risk. However the number of non-residential properties at risk

within each policy unit has been identified in Table J.2 and any significant properties have

been referred to in the column entitled key infrastructure.

The values of property losses do not take account of: residual life of existing defences;

gradually increasing risk of coastal erosion or flooding to properties over time, or flood

damages when the property is not written off and when the present value damages are

lower than the market value of the property.

Policy appraisal has determined a ‘zone’ of likely future coastal erosion; for the purposes of

estimating possible benefits the most landward extent of erosion, after 100 years, has been

used in the analysis.

In areas where there is a flooding risk, no attempt has been made to undertake detailed

flood risk modelling; rather areas identified as at flooding risk by the Environment Agency

Wales Flood Map (which shows the area which is at risk during a 0.1% annual probability of

occurrence, 1 in 1000 year return period event, taking no account of existing defences) have

been used to identify assets potentially at risk. The potential damages in these flood cells are

simply taken as the summed value of all the ‘at risk’ assets. This is based on the assumption

that under a NAI scenario flood defences would fail and all ‘at risk’ assets would be



J-4

inundated and become uninhabitable. This is taken as an indicative figure for the value of

assets potentially protected by defence structures.

Due to the high level view adopted by the SMP review no account has been taken of

standards of protection as it is only high level coastal erosion and flood risk management

policy that is being determined. Standards of protection relate to implementation of these

policies, which is usually undertaken within more detailed ‘strategy’ level studies.

Since the National Property Database was unavailable to the project team due to copyright

issues it has not been possible to provide a value for key infrastructure which is at risk from

coastal erosion and flooding within each policy unit such as utilities, highways and railway

lines. However the key infrastructure within each policy unit has been identified in Table J.2.

Intangibles, such as community/ social impacts upon the local economy or environment,

have not been valued. However in some areas the justification for continuing to maintain or

improve existing defences has been based on the tourist value of the area, asset or beach.

For information a summary of the value of coastal tourism to the Welsh economy and within

each local authority has been provided below.

Agricultural Land

Agricultural land values are highly variable depending on grade, location and size of lot and

were extremely volatile in 2008 and 2009. A weighted average of £15,114 per ha has been

assumed for grade 1 and 2 farmland. The growth in leisure and lifestyle purchases of

farmland has seen prices significantly higher in recent years. This type of sale is more

commonly grade 3 land which accounts for the difference in valuation between grades 1

and 3. Based on previous SMP valuations, a grade 3 valuation 6% higher than grade 1 was

chosen and for grade 4/5 a valuation 4% lower than grade 1 was used.

In accordance with the guidance in the Defra (2008), in following Scenario 1 (land is

abandoned or no longer fit for agricultural use for the foreseeable future), land values were

reduced by £600/ha to take account of subsidies, see Table J.1 below.

Grade 1 and 2

Land Value (£/ha)

Grade 3

Land Value (£/ha)

Grade 4 and 5

Land Value (£/ha)

£15,114 - £600 = £14,514 £16,021 - £600 =

£15,421 £14,509 - £600 = £13,909

Table J.1: Average value of bare agricultural land, reduced to take account of subsidies

Tourism

Coastal tourism contributed £648 million to the Welsh economy in 2006 (Wales Coastal

Tourism Strategy, WAG, July 2008). Approximately 33% of tourism revenue to Wales is

generated in the South East Wales region; 50% of the overseas tourism revenue emanates

from South East Wales and 64% of business tourism spend occurs in South East Wales

(Bridgend County Borough Economic Partnership, February 2006). Tourism expenditure in the

Vale of Glamorgan was £110.1 million in 1994 (Vale of Glamorgan STEAM report,

http://valeofglamorgan.devplan.org.uk). More than 1.3m tourists visited Neath Port Talbot



J-5

County Borough in 2008 (29 Oct 2009, www.newswales.co.uk). Tourism contributed over £300

million to the local economy of the Swansea Bay area in 2008 (News, April 2009,

www.swansea.gov.uk). Carmarthenshire’s tourism industry was worth £274 million in 2007 with

2.9 million people visiting the county (1 Sept 2008, www.sirgaerfyrddin.gov.uk). Pembrokeshire

tourism revenue was £521 million in 2008 (PCC, STEAM Report 2008).

All Wales Coast Path

No defences are proposed to reduce the risk of coastal erosion to the all Wales Coast Path. It

is accepted that there will be instances of coastal erosion that will require the route of the

path to be re-aligned. Any work undertaken to develop the all Wales Coast Path will have a

design life of 25 years (Sue Rice, Access Programmes Manager, 23 Oct 2009).

Railway

Network Rail currently has no plans to realign any lines in South Wales in the short (20 years),

medium (50 years) or long term (100 years) (Network Rail, 18 Nov 2009).

Ministry of Defence

In the short term (0–20 years) strategic facilities at both Pendine and Pembrey have

important roles to fulfil. All Ministry of Defence sites are effectively under constant review,

however the type of conflict that our armed forces are engaged in and the nature of the

work carried out at these sites is unlikely to change significantly for the foreseeable future.



J-6

J.4 Future coastal erosion and flood risk management costs

Future coastal erosion and flood risk defence management approaches for each Policy Unit

have been developed as part of the Preferred Plan. From this the high level replacement

and maintenance requirements for each epoch have been determined.

Future defence costs for an area have been generated using nationally available

information.

Cost Rates

Replacement costs for general defence types have been taken from Environment Agency’s

Unit Cost Database (Environment Agency, 2007). This suggests average replacement costs

for linear structures (e.g. seawalls, revetments, groynes and beach recharge) are based on

costs incurred on recent Environment Agency projects.

Maintenance costs have been taken from the Defra ‘National Appraisal of Defence Needs

and Costs’ (NADNAC) study (Defra 2004). Updated to current values using the Public Works

Non Road (PWNR) index, this suggested annual maintenance costs for linear structures at

£12,000/km.

Cost Calculations

It has been assumed that the timing of full scheme reconstruction required (i.e. design life) is

at least once every 50 years for linear defences, such as seawalls, revetments and

embankments. However, these periods may become more frequent for areas where erosion

potential is high. Maintenance has been assumed to occur to the same level in every year

throughout the life of the scheme. In reality, this will be less in the early years and will increase

in later years of the scheme’s life. However, for the high level appraisal undertaken for the

SMP this will make negligible differences to decisions as the highest costs are associated with

capital works.

Allowance has also been made for the increase in costs due to climate change and sea

level rise, based upon factors developed for the NADNAC study. This takes account of the

need to make structures higher, deeper, and more resilient to increased exposure. The

assumptions were: no cost increase for the 0-20 year epoch; costs factored up by 1.5 times

present day rates for the 20-50 year epoch; and costs factored up by 2.0 times the present

day rates for the 50-100 year epoch.

In accordance with the latest Defra and HM Treasury guidance, Optimism Bias (OB) was

applied to all costs (at 60%) to reflect uncertainty in the high level analysis at the SMP scale.

No costs have been attributed to dune management (managed realignment) since the

selection of this policy option is typically linked to environmental management of the site

and is not sensitive to the benefit cost ratio. Otherwise where the preferred option is

managed realignment, costs have been based on the capital value and maintenance costs

of assumed alignments of potential set back embankments/ seawalls. These alignments and

costs are subject to uncertainty since further detailed studies would be required to confirm

the requirements of a particular managed realignment scheme.



J-7

J.5 Economic Summary

A summary of the economic review of the preferred SMP2 policies for each Policy Unit is

provided in Table J.2 overleaf. It defines the number of residential properties, residents, non-

residential properties (see Figure J.1), agricultural land and key/ strategic infrastructure which

are at risk from coastal erosion and flooding in the long term (100 years).

The number of residential and non-residential properties which are at risk during a 1 in 1,000

year return period extreme tide event, excluding sea level rise, taking no account of existing

defences, is 12,927 and 2,592 respectively.

The estimated number of residential and non-residential properties which are at risk from

coastal erosion alone over the SMP2 period (100 years) under the preferred SMP2 policies are

195 and 99 respectively.

The economic review also includes an initial appraisal of undiscounted benefits and costs

associated with the preferred SMP2 policies.

Figure J.1: Number of residential and non-residential properties which are at risk from

flooding during a 1 in 1,000 year return period extreme tide event, excluding sea level rise,

taking no account of existing defences



J-8



J-9



J-10



J-11



J-12

J.6 Sensitivity Analysis – Future Sea Level Rise

In response to queries raised by the CSG, a high level sensitivity analysis was undertaken to

define the additional number of residential and non-residential properties which are at risk

from 1m future sea level rise (Defra 2006 guidance) and 2m future sea level rise (the UKCIP09

estimate for average sea level rise around the UK from the melting large ice sheets, which

cannot be ruled out, but recent observations and model projections do not provide

evidence that it will occur).

LiDAR topographic data (obtained from the Environment Agency Wales - it should also be

noted that there are gaps in the LiDAR data provided) was used to define the area which is

at risk from tidal flooding, following the failure of existing defences, during a 1 in 1000 year

return period event, including 1m and 2m sea level rise. The extent of flooding is a high level

approximation, based upon extreme still water levels alone and takes no account of wave

action, flooding due to wave overtopping, fluvial flooding, combinations of tidal and fluvial

flooding, surface water or ground water flood risk. The analysis appears to over-estimate the

risk of tidal flooding at Carmarthen, due to a lack of tide level and extreme tide level data at

this location.

Along the SMP2 coastline the additional number of properties at risk is typically small (less

than 4% for 1m future sea level rise), compared to the number of properties which are

currently at risk, since the topography rises steeply from the existing flood plain, see Table J.3

and Figures J.2 and J.3.

Table J.3: Number of residential and non-residential properties at risk from future sea level rise

(1 in 1,000 year return period extreme tide event, excluding existing defences)

Residential properties

Excluding sea level

rise

1m future sea level

rise

2m future sea level

rise

12,927 13,416

(489 or 3.8%)

14,024

(1,097 or 8.5%)

Non-residential properties

Excluding sea level

rise

1m future sea level

rise

2m future sea level

rise

2,592 2,686

(94 or 3.6%)

2,767

(175 or 6.8%)

(Figures in brackets indicate the increased number of properties

which are at risk from flooding as a result of future sea level rise)



J-13

Figure J.2: Number of residential properties which are at risk from flooding, including future

sea level rise 1m and 2m (1 in 1,000 year return period extreme tide event, following failure of

existing defences)

Figure J.3: Number of non-residential properties which are at risk from flooding, including

future sea level rise 1m and 2m (1 in 1,000 year return period extreme tide event, following

failure of existing defences)

Documents

Appendix J - Economic Appraisal - South Wales SMP SMP2... · 2012-09-03 · Lavernock Point to St Ann’s Head SMP2 Appendix J: Economic Appraisal J-1 J.1 Approach A review of economic