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CHAPTER 9: RESULTS OF ECONOMIC ASSESSMENT

Introduction

9.144 Capital works undertaken by the local authorities under the Flood Prevention (Scotland) Act 1961 must be subjected to economic appraisal to ensure value for money. To ensure this, the benefits or damages avoided by the FPS (the damages associated with the pre-scheme case minus the damages associated with the defended case) must be greater than the costs of construction (i.e. a benefit-cost ratio greater than one).

9.145 The aim of the economic appraisals carried out for this study is to assess the success of constructed schemes in meeting this requirement.

History of economic appraisals

9.146 The history of economic appraisals in flood protection works is a relatively recent one, with techniques necessary to measure the damage losses only becoming available in the last 30 years. Schemes prior to this were unlikely to undertake any appraisal methodology and were constructed based on recent flooding and public pressure without any rigorous analysis to ensure value for money.

9.147 The Flood Hazard Research Centre ( FHRC) developed 3 manuals from 1977 to 1992 to determine the flood losses for residential, commercial, industrial and agricultural areas. These three manuals were combined and updated in 2003 providing the MCM. These techniques have gradually been incorporated into FPS procedure, although the degree of information and discussion of the methods used varies considerably between schemes. Few schemes had information available on economic appraisals undertaken at the time of design other than the most recently constructed schemes.

Results of Project Appraisal

9.148 A review of Category B Flood Prevention Schemes with available data has indicated that the schemes vary in terms of cost effectiveness and benefit in flood risk mitigation. Out of the total 72 schemes constructed, 33 have sufficient data to be able to review these to present day costs and with current standards of protection. Six Category A schemes constructed recently have sufficient information available to utilise the data from the scheme reports without the need for a full review.

9.149 There are many Category C schemes that have little or no information relating to them that are not included in the analysis. It is expected that the sites excluded from the analysis would not significantly affect the overall results, as the sites with little or no information are small, lower cost schemes that do not protect a significant number of properties.

Number of properties protected

9.150 The total number of properties protected by the 39 schemes assessed is 4580. Table 9-1 illustrates how this number of protected properties is distributed across the local authority area. A significant number of properties are protected by the Perth scheme. The ratio of non residential and residential properties protected is approximately 1:4 with 3619 residential and 961 commercial/industrial properties protected by the schemes in Scotland.

Table 9-1: Number of Properties protected by local authority

9.151 Figure 9-1 shows the cumulative costs of scheme construction against the number of properties protected, indicating that the cumulative number of properties protected to the standard of protection flood follows the general trend of FPS cost.

9.152 The number of properties protected by flood prevention schemes in Scotland has followed a trend of gradual increase until the mid to late 1990's, at which point several schemes have significantly increased the total number of properties protected. Assuming that all schemes currently not protected to the design standard are protected to the designed return period, the number of properties protected would be greater.

9.153 The current preferred standard of protection for new schemes is the 1% AEP flood (100 year return period). There are 1570 properties still to be protected to the 100 year return period within areas protected by the 39 schemes assessed in detail. Thus, there is a significant benefit that could be derived from improving the condition and standard of existing defences to the preferred standard of protection.

Figure 9-1: Cumulative series of construction costs against properties protected

9.154 It must be noted that whilst many sites were designed to protect against the 100 year level, some schemes were not designed to this standard and thus, the above value cannot be taken as a direct measure of failure of the schemes to protect properties at risk.

Damage results

9.155 The pre-scheme and post scheme ( SOP) damages for the main set of return periods modelled are shown in Figure 9-2. This shows that the schemes have a net effect of significantly reducing the damages at each of the return periods studied.

9.156 Should the current onset of flooding case have been studied (often resulting in improved protection due to the lack of freeboard), then the damages for the defended scenario would have been less and the damage avoided greater.

9.157 It is obvious that the greatest reduction in damages occurs for the more frequent return period floods, in the 5 year to 25 year range. This is expected as a greater percentage of schemes protect to the low return period floods, with gradually fewer schemes protecting to the higher return period floods.

9.158 The Average Annual Damage ( AAD) avoided as a result of the flood prevention schemes is £5 million. The estimate of AAD without the schemes in place would increase to £18 million, expressed as a Present Value of damages avoided this is equivalent to £240 million. Figure 9-2 also indicates that there is significant potential residual damage, which is to be expected as few schemes protect to the 1000 year flood.

Figure 9-2: Total damages, damage avoided and residual damage

Note: Does not include the more recent schemes where sufficient information was not available (Perth, Largs, Kilmarnock, Kelvin, Fraser Road and Rothesay)

9.159 Table 9-2 shows the Present Value of damage avoided by local authority area. This indicates that certain schemes contribute a large percentage to the overall total value of damages avoided. In particular is the Perth scheme, which was designed to a very high standard of protection and accounts for 50% of all properties protected by schemes reviewed.

Table 9-2: Damages avoided by Local Authority

9.160 Figure 9-3 compares the cumulative values of updated construction costs for schemes with costs available (54), against the present value of damages avoided for schemes assessed (39). This clearly indicates that since the 1961 Act the net benefit of the schemes outweighs the cost of construction. This shows that whilst some schemes do not provide a cost beneficial response to flood risk (damage avoided is less than cost), the overall effect is not significant.

Figure 9-3: Cumulative series of construction costs against damages avoided

9.161 The general trend of costs against damages avoided is also shown indicating that from the 1960's through to the early 1980's the cost of construction was high compared to the damage avoided. Through the 1980's the costs were lower compared to the damage avoided. This is in part influenced by a large property development in a large area of floodplain in Carnoustie, resulting in a potentially significant reduction in damages by the scheme. Since the 1990's through to the present day there has been a steady increase in the effective costs of construction compared to the damage avoided. This latter increase indicates that the recent schemes are more complex, protect more difficult at-risk areas, increased standards of construction and/ or greater protection standards.

9.162 Damage estimates under the climate change scenario have not been assessed for this study. Whilst estimates for the impact of climate change on river flows for the year 2080 are available ( Chapter 4), there is still uncertainty on how river flows would respond to such changes under the range of return periods required for the economic appraisal. Although this assessment was outwith the scope of this study, the data is available to undertake this assessment and could be undertaken in the future.

Benefit Cost ratio

9.163 The economic analysis was carried out to evaluate the schemes with available information to determine the current benefit cost for each of the schemes.

9.164 Figure 9-4 which illustrates the current range of benefit cost ratios for the schemes studied. Whilst it shows that 2 sites actually make the flooding worse, as indicated by a negative benefit cost, it is encouraging that 79% of the sites assessed have a benefit cost ratio greater than 1. The average benefit cost ratio is 8.

Figure 9-4: Benefit cost ratios for schemes assessed

9.165 In some cases, should the schemes have performed to the same standard of protection as designed, it is likely that the schemes with a benefit cost ratio less than 1 would have been more cost effective. In some cases however, the costs of construction were significantly higher following construction than those used for the original economic appraisal.

9.166 The current appraisals were undertaken using the standard of protection case. Should the appraisals have utilised the current onset of flooding condition without freeboard, then the standard of protection may be higher and the benefit cost ratios raised.

Discussion

General

9.167 Since the Flood Prevention (Scotland) Act 1961, a total of 72 schemes have been constructed to a total present value of £82 million, with an average cost of £2.1 million per scheme. Alternatively there are assets worth £82 million that require effective management if they are to continue to deliver effective flood risk mitigation.

9.168 Current analysis has indicated that the net costs of Flood Prevention Scheme construction and maintenance for the next 100 years is less than the damage avoided as a result of the schemes and thus the net benefit cost ratio is greater than one. This indicates that the construction of flood prevention schemes in Scotland provides a cost effective and beneficial reduction in flood risk to those communities protected by the schemes. This assumes that the schemes without information that have not been assessed due to lack of information are equally cost effective. Included within this net benefit, there is a range of appraisal results indicating that not all schemes are equally cost effective or beneficial to the area protected.

9.169 Under the Flood Prevention (Scotland) Act 1961 and the Flood Prevention and Land Drainage (Scotland) Act 1997, each local authority must maintain all schemes constructed under the 1961 Act. If the benefit cost ratio is less than 1 then this may not be justified economically. The brief for this project was to review all FPS rather than to test options for future enhancement or repairs therefore the efficacy of enhancing an FPS will need to be assessed for each scheme individually.

9.170 Benefits from low return period events are important in making a scheme economically viable. Many of the schemes in Scotland show a positive benefit-cost ratio but only offer a low standard of protection.

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