More than half of existing and planned power plants in South and Southeast Asia are located in areas currently considered water scarce or stressed, according to findings in a report released today by the World Resources Institute (WRI) and HSBC’s Climate Change Centre of Excellence.
The new report, Over Heating: Financial Risks from Water Constraints on Power Generation, analyzes water-related risks facing thermal and hydroelectric power plants in India, Malaysia, the Philippines, Thailand and Vietnam. These plants require large amounts of water for cooling and generation.
WRI mapped the water stress level across the region and the location of more than 150 existing and planned facilities of the largest power-generation companies in the region. The analysis found that water shortages pose the highest risk for power generation companies in India.
“Water-related risks are hard to quantify, yet they present a growing risk to power generation,” said Piet Klop, acting director of WRI’s Markets and Enterprise Program. “The next step is to take our analysis to specific companies and their exposure and response to those risks. On the upside, investors have investment opportunities that can come from better understanding water-related risks.”
In India, approximately 62 percent of existing and 79 percent of planned thermal and hydroelectric power plants of the three largest power generation companies (NTPC, Tata Power, and Reliance Infrastructure) are located in water scarce or stressed areas. The country’s water demand is expected to outgrow supply by 50 percent by 2030 and estimates by the World Bank indicate that all available water supplies will be exhausted by 2050.
“The power sector investors and analysts are making long-term bets on water that, in the future, might no longer be reliable,” said Amanda Sauer, a senior associate at WRI. “They need to start assessing their exposure to water-related risks when considering long-term investment strategies.”
The report’s findings suggest that project delays due to water-permitting problems and general shortages may be costly. As part of the study, HSBC’s analysts found that a 12-month delay in commercial operation could lower the rate of return on investment by 1.5 percent. Furthermore, each 5 percent drop in power production due to water shortages could result in nearly a 0.75 percent drop in the project’s rate of return.
“The projected expansion of power generation - whether coal, hydro or gas – is exposed to growing water stress,” said Nick Robins, head of the Climate Change Centre of Excellence (C3E) at HSBC.
Roshan Padamadan, a HSBC analyst at the Centre said, “Investors need to understand how companies are managing these risks, including the specific steps to optimize water use at the plant level.”
Over heating is the second report in a three-part series. The first report, Weeding Risk, looks at climate change and water scarcity impacts on the food and beverage sector in India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. The third report, Surveying Risk, Building Opportunity, assesses environmental risks to commercial real estate in the region.
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