Against this background, a new report from the World Energy Council, in partnership with Marsh & McLennan and Swiss Re, and “supported by a task force of over 140 experts from across the world”, The road to resilience – managing the risks of the energy–water–food nexus, draws attention to the looming issue of potential water scarcity and its implications for the energy sector, calling for immediate action.

The World Energy Council highlighted the relationship between water and energy in its 2010 Water for Energy report. Since then, technological advances such as ‘recirculating’ systems as opposed to ‘once- through’ systems, the adoption of dry cooling, improvements in desalination processes, and reusing water from oil extraction have been progressively deployed to reduce the water footprint of energy, the report notes.

However, technologies to make energy infrastructure more resilient to the risks posed by the energy–water–food nexus often increase the cost of development. Thus, increased resilience would add to the International Energy Agency’s estimate of US$48–53 trillion in cumulative global investments needed in energy infra- structure by 2035. The scale of financing required is therefore significant and the private sector will have a crucial role in meeting this challenge, the report says.

Key findings from the report include the following:

  • Energy is the second largest user of fresh water after agriculture. Water is used all along the energy value chain in primary energy production (coal, oil, gas, biofuels) and in power generation (hydro, cooling), with 98% of the power currently produced needing water.
  • The risks posed by the energy–water– food nexus will become more significant because of growing demand for energy, water and food. Moreover, some of the regions that are currently water stressed are also likely to see significant economic development, population growth and changing consumption patterns, and a higher concentration of people and assets in critical areas, intensifying the risks posed by the nexus.
  • Alongside growing demand, increasing uncertainty about water availability and quality – driven by climate change impacts such as declining freshwater availability, increased ocean temperatures and more extreme weather – will further increase the significance of risks posed by the nexus.
  • In many cases, there is a lack of location- specific knowledge on water issues and a lack of modelling tools to adequately reflect risks posed by the nexus in energy infrastructure investment decisions. Such risks can be associated with large economic stakes. For example in 2015, hydropower facilities in Brazil sustained economic losses of more than US$4.3 billion due to drought-related energy and water rationing measures. Another example mentioned in the report is that of South Africa, where water scarcity threatens the viability of the country’s coal production given the water intensiveness of coal, which is used generate about 90% of domestic water supply.
  • The risks posed by the nexus are often exacerbated by the lack of sound water governance such as well-defined water rights for competing users, water pricing and trading arrangements.
  • Cross-border co-operation is a key issue. 261 international trans-boundary basins cover 45% of the earth’s land surface, serve 40% of the world’s population and provide 60% of the earth’s entire freshwater volume. This affects the operation of planned and proposed energy infrastructures, and there is a need to ensure that adequate cross-border water management frameworks are in place.

To mitigate resource constraints, it will be necessary to further reduce the amount of water needed for energy production, the report says. Early analysis indicates that the overall water footprint of the energy sector could be lowered if more power or heat were produced by renewables such as wind, photovoltaics, or natural gas, as they have comparatively low water usage.

Technology changes within existing infrastructures can also help to mitigate nexus risks, the report says. Case studies have highlighted the utility of decoupling cooling systems from freshwater resources by using salt water or dry cooling, developing better use of wastewater, and integrating renewables in desalination and irrigation.

Methodologies that integrate water availability into design must also balance concerns regarding energy security, affordability and environmental sustainability. Some of the technologies highlighted as part of the low-carbon transition, such as biofuels or carbon capture and storage, which nearly doubles the water requirements of a coal power plant, may in fact increase water stress, the WEC report warns.

The report makes five recommendations:

  • Improve understanding of the water footprint of energy technologies in order to mitigate the risks of stranded assets.
  • Account for the ‘price’ of water, particularly in areas of water stress.
  • Consider a wider range of financial and insurance instruments to hedge short term risks such as adverse weather incidents and associated electricity price volatility.
  • Give investors the confidence to invest by providing them a full risk assessment that includes different climate and hydrological scenarios in financial analyses.
  • Provide a reliable and transparent regulatory and legal framework that takes into account water issues and competing stakeholders’ interest.