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2021: The European year of rail

Stefanie Scholtysik examines why rail remains by far the most energy-efficient mode of transport.

Living in Switzerland and being a regular train rider, one is surprised to learn that globally 70% of all railroads still use diesel to set trains in motion. Rail transport in Switzerland has been electrified since 1960. The picture obviously looks different elsewhere and the claim that rail is a particularly smooth and environmentally friendly mode of transport is somewhat brave. Even broken down to individual passengers or freight goods, there are more energy-efficient forms of rail transport than propulsion using a diesel locomotive. Considering the rapidly urbanising cities in developing countries, it is clear that the development of environmentally friendly transport is of great importance in industrialised countries. That said, rail remains the most efficient mode of transportation, and it is anticipated that "green" money will flow into electrification or hydrogen powered trains as well as in digitalisation. The rail infrastructure and the equipment itself will also become more energy efficient. We believe that rail could even partially replace short-haul flights or freight transport. The Paris - Milan route, for example, has 1.75 million air passengers per year, who together generate 298,900 tons of CO2. If all these flights were replaced by rail, only 34,300 tons of CO2 would be generated.

Globally, there are enormous infrastructure packages ready to be rolled out with the aim of supporting the economy in a green way, which includes reduction of CO2 emissions in the long term with innovations in areas such as mobility. It remains to be seen whether any of these billions in spending will ultimately go to rail infrastructure. In Europe, the Green Deal sets the objective of achieving climate neutrality in Europe by 2050 and plans a large investment programme. Transportation overall accounts for a quarter of the EU’s total greenhouse gas emissions and within this, there is a shift needed from roads and aviation towards the greenest means, namely railways. In Europe, it is not only a question of transitioning passenger traffic from road and air towards rail, but also inland freight transportation, which is still very much dominated by road. 75% of the inland freight transportation market in Europe as of today is carried by road. On a global basis, around 7% of freight activity goes by rail, with the US rail networks mainly used for freight. Also, in Russia, Australia, Brazil, Canada and India substantial freight volumes are carried by rail.

There are several routes towards CO2 reduction in the railway industry. One is through electrification and the use of other energy resources rather than diesel and the other is by digitalisation. In Europe, CO2 emissions from road transport have increased dramatically over the last thirty years, while direct emissions from railways have declined by 66% due to electrification of the railway network. Around 40% of the railway track is still unelectrified in Europe. The trend toward electrification is accelerating significantly. Leipzig's local public transport system, for example, is replacing its diesel trains with electric multiple units from Stadler. Negotiations within the EU are currently ongoing for the multiannual financial framework 2021-2027 with the total proposed allocation over EUR 30bn. This could even increase to EUR 40bn. In addition to electrification, pick up is increasing in the hydrogen area. The San Bernardino County Transportation Authority in the US has ordered hydrogen-powered trains from Stadler. In Europe, Stadler has also won the tender for the delivery of new hydrogen-powered trains to Zillertal Railway in Austria.

Furthermore, digitalisation is a major driver for CO2 reduction due to increasing the efficiency of the existing infrastructure and thus increasing capacity by 30-40%. In Europe every country uses its own control system, which is a barrier for seamless traffic between countries. To encourage integration, authorities have introduced the European Rail Traffic Management System (ERTMS) standard, a major project implemented by the European Union.

It is no surprise that Stadler Rail began investing in signalling technology in 2016 with the aim of developing this vital part of technology within the company. These investments in signalling technology will pay off, as it is a growing market driven by the above arguments and has a higher margin than the traditional project management. Around CHF 700,000 worth of signalling equipment is usually installed in a normal train. Until now Stadler had to leave this business to its direct competitors (particularly Siemens and Alstom). Today the signalling part is still low for Stadler Rail, but it should contribute to the business in the near future. With the investments done, Stadler is in a position to capture this additional revenue and doesn’t have to pay high prices to others.  

Electrification is of course an important topic not only in the automotive industry, but also for the railroads. Rail is already the most efficient mode of transport today when it comes to CO2 emissions, but there is still plenty of room for improvement in terms of electrification and digitalisation. We believe that Stadler Rail in particular should benefit from these trends.

Author

Stefanie Scholtysik

Equity Analyst

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