Interlinkages and trade-offs between water and energy

Diego J. Rodriguez, Senior Economist, The World Bank

Water – Energy Interdependence

Why is the energy-water issue important?

Of the 7 Billion people on Earth today,

Increasing pressure on finite water resources

Source: IEA, 2012

Water scarcity is increasing as demand for water intensifies with population and economic growth Climate change is exacerbating water and energy challenges

Rapidly growing demand for energy in developing countries will double energy’s demand for water by 2035

The energy-water challenge is already present and very real

Water constraints are presently impacting the energy sector

Europe

Middle East

India and China

USA

In the U.S., several power plants have had to shut down or reduce power generation due to low water flows or high water temperatures.

In India, a thermal power plant recently had to shut down due to a severe water shortage.

France has been forced to reduce or halt energy production in nuclear power plants due to high water temperatures threatening cooling processes during heat-waves.

Recurring and prolonged droughts are threatening hydropower capacity in many countries, such as Sri Lanka, China and Brazil.

Challenges will be more complex in the future if we don’t act now

expansion plans for coal power plants in China might not be feasible due to water scarcity issues

more than 50% of power plants in India and Southeast Asia are in areas that will likely face water shortages

Europe’s coal and nuclear power generating capacity will decrease by 6% to 19% between 2031-2060 due to increased water temperature or lack of cooling water

nearly 93% of Middle East’s onshore oil reserves are exposed to medium to extremely high water risk

the energy sector recognizes the magnitude of the issue

Source: CDP Global Water Report, 2013

Impact on the world's top energy and power companies

The first time that WEO includes special section on the water needs and the possible future water constraints of the energy sector

Indicate that water is a substantive risk to business operations

& &

Have experienced water-related business impacts in the past 5 years

Energy sector needs water and is vulnerable to water issues

Increased water temperatures can prevent power plants from cooling properly

Decreased water availability can affect thermal power plants, hydropower, and fuel extraction processes due to their large water requirements

Regulatory uncertainty

Sea level rise could impact coastal energy infrastructure

Water quality can impact energy operations if it is not regulated and managed adequately

water risks for energy sector

Energy Services will be increasingly affected by the consequences of climate change

ENERGY IMPACT CLIMATE CHANGE

RE resources Changes in runoff, wind, crop response, ocean climate

Energy supply Hydro – water availability and seasonalityWind – variable wind regimeBio-fuels – reduced transformation efficiencySolar – reduced solar cell efficiencyThermal - Generation efficiency and cooling water availabilityOil & Gas – extreme events

Transport/ T&D Extreme event frequency, sea level rise

Design, O&M Siting – sea level rise, extreme eventsDowntime/ trade – extreme events

Demand Temperature rise, inter-annual variations

Cross sector Water resource management/ competition & siting

SOURCE: ESMAP PRESENTATION ON CLIMATE IMPACTS ON ENERGY SYSTEMS. NOVEMBER 16, 2010

Keymessages

Relative location of power plants vs. hurricane/typhoon zoning areas in Mexico

Water scarcity changes is Asia

Projected changes in hydropower generation

SOURCE: ESMAP PRESENTATION ON CLIMATE IMPACTS ON ENERGY SYSTEMS. NOVEMBER 16, 2010

SOURCE: WRI, 2012. The baselines water stress is defined as the ratio of total annual freshwater withdrawals for the year 2000, relative to expected annual renewable freshwater supply based on 1950–1990 climatic norms.

In an interconnected world, water is no longer a local problem onlyWe need to understand and quantify tradeoffsClimate impact: Major increases in climate variability expected, with increased frequency of droughts and floods. Heaviest

impact will be borne by the poorest, who are already underinvested in adaptation to current climate

Major demand increases…

Competition for water allocation

Impaired water quality affecting all uses

▪ 70% increase in food production will be required in 40 years (with it already 70% of withdrawals)

▪ Half the world’s food is grown on groundwater, much of which is unsustainable

▪ Use of crops for biofuels affecting food prices

▪ Global energy consumption expected to increase by ~50% from 2007-2035

▪ Water-intensive thermal and hydro account for 90% of current power generation

▪ Power outages caused by lack of cooling water already seen in many countries

▪ Changing settlement patterns, with a 2004-15 to see 40% increase in urban population without basic WSS access

▪ 80% of all people lacking WSS access in rural areas

▪ Half of urban water supplies are from groundwater with very little knowledge of hydrology

▪ Rapid urbanization

▪ Ecosystem damage largely coincides with high water stress (e.g., Indo-Gangetic Plain, North China Plain) and fertilizer runoff (dead zones)

▪ Over-consumption of water, water pollution and inadequate pricing of the resource results in loss of massive ecosystem benefits

…with the potential to derail growth

Lack of sanitation access can cost countries up to 6% of GDP

Unreliable water supply and farm-to-market access can deprive farmers of 2/3rd of their potential income

Energy security is threat-ened by water challenges; 3% of Kenya’s GDP from lost hydro production over 1998 - 2000

Losses of biodiversity and ecosystem services with increasingly visible economic cost (e.g., China losing 5% GDP to pollution)

Health and human settlements Food and agriculture EnvironmentEnergy and industry

We need to understand and quantify tradeoffs

Water – GHG tradeoff

Some policies to reduce GHG emissions can increase water requirements by the energy sector if not designed properly

- biofuels, carbon capture…

Dry cooling vs cost of electricity

Dry cooling systems require no water for their operation, but decrease efficiency of the plant:- increasing capital and operational costs- increasing GHG emissions per kwh

Water for energy vs. water for agriculture

The value of water for energy might be higher regarding economic outputs, but agriculture is often required for - national security reasons (food) - social reasons (people employed in the agricultural sector)

Energy vs. agriculture crops

What makes more economic, social and environmental sense?

Hydropower

Assessing tradeoffs, environmental and social impacts and exploring the use of multipurpose dams is necessary for sustainable development

the challenge: how do we plan & how do we design our investments?

Political-level challenges impede effective planning:

The two sectors have been regulated separately

Current energy planning is often made without considering changes in water availability and quality, competing uses or the impacts of climate change.

Challenges in securing enough water for energy and energy for water will increase with population and economic growth and climate change

Stronger integrated planning will be necessary to evaluate tradeoffs, find synergies, and ensure sustainable development

SOURCE: VULNERABILITY OF US AND EUROPEAN ELECTRICITY SUPPLY TO CLIMATE CHANGE. VAN VLIET ET AL, 2012

Hot Spots – where “low flows” and “water temperature increase” meet

Current planning and engineering processes were developed for a very different world and will not serve tomorrow’s world well

• Planning processes for water allocation don’t always consider expected future demand for power

• Planning processes for power don’t consider water availability

• When constructing individual plants and schemes, typically consider today’s water rather than tomorrow’s water

• Decisions being made today are locking rivers, cities, ecosystems, power systems into particular water consumption patterns

Photograph: Paul Owen/GuardianHoover Dam, where record-low water levels are threatening cheap electricity

Fracking requires large amount of water and also generates waste water that needs to be treated

but we must acknowledge the complexities of the energy sector

Thermal pollution from once through cooling has adverse effects on ecosystem

Cooling towers – requires water and may affect water quality (return and abstraction)

There are many solutions, we need to start somewhere

an example of a methodological approach

▪ Flexible modeling framework to facilitate tailored analyses over different geographical regions and challenges▪ Build on existing country knowledge and modeling tools▪ Robust treatment of risk and uncertainty▪ Incorporate the long-term effects of climate change▪ Economic tools to assess the tradeoffs between competing

sectors and to provide policy recommendations to mitigate potential effects▪ Case studies or pilots to illustrate different types of situations in

that are most relevant for client countries

South Africa: the case of A Water Scarce Country

Water scarce country with very stressed basins in terms of water allocation

Coal Thermal Power plants account for almost 90% of the power capacity installed

Fracking for Shale Gas is being explored, which will put additional pressure on water resources

Need for Water and Energy Integrated planning to achieve a sustainable future and avoid water scarcity problems in the next years

Sources - Top: CSIR, Bottom: ESKOM and Department of Energy of South Africa

Competition for water across sectors will increase – Power plants have priority, which could negatively affect other sectors such as agriculture

Using what already exist :Improvement of existing TIMES model

South Africa TIMES (SATIM):

Partial equilibrium linear optimization model capable of representing the whole energy system, including its economic costs and its emissions

Five demand sectors – industry, agriculture, residential commercial and transport - and two supply sectors - electricity and liquid fuels

The model is capable of solving for a variety of constraints

1. Develop marginal water supply cost schedules

2. Develop the “water smart” SATIM

3. Energy-Water Model Simulations : run different scenarios to assess how energy sector development strategies change relative to the reference scenario depending if water is constraint, if water has a price, etc. Look at expansion of coal, fracking, imposed GHG limits, etc.

PHASE 1:

Overview of SATIM

SOURCE: ERC - UCT

Overview of SATIM: the power sector

SOURCE: ERC - UCT

…but as of now there is no constraint on it, the model

assumes that it is an infinite resource and with no price or

regional constraint

Links to CGE model (E-SAGE)

Run the CGE model to establish reference scenario demand projections for energy. Run SATIM with these given demand projections to produce a new Reference case,

and then run a new EW-Nexus case that allows for reduced energy demands from economy-wide adjustments when energy prices rise to reflect water scarcity.

Pass SATIM findings on increased energy production costs back into the CGE model in order to evaluate the economy-wide impact of accounting for water scarcity in energy sector development.

Compare these reference and EW-Nexus scenarios. Compare the incremental water supply costs for energy expansion across the

different water management areas in the model to other figures for water shadow prices by water management area. Using such comparisons, highlight where increased demands on water sources from energy sector expansion may particularly pose challenges to efficient water management across sectors and water management areas.

PHASE 2:

E-SAGE: Energy-- extended South African General Equilibrium model‐

E-SAGE model

SOURCE: THURLOW, UNU- ‐WIDER

A World Bank Initiative

Keymessages

ECONOMIC – Future water scarcity can threaten the long-term viability of projects and hinder development. Water constraints may compromise existing operations and proposed projects, and increase operational costs

DEVELOPMENT/SOCIAL – Water and energy are indispensable to sustainable growth. Demand for water and energy is increasing. Several regions are already experiencing resource shortages, with profound social impacts. Climate change and economic growth can exacerbate the problem.

ENVIRONMENTAL – Poor management of energy and water has far-reaching, adverse environmental impacts. Given their interdependence energy resources should be planned with water resources in mind and vice versa. Adequate regulations will be crucial to ensure a sustainable growth.

POLITICAL – If political leaders do not act now, there could be serious economic, social and environmental consequences. Quantifying tradeoffs between resources and planning across sectors is critical to avoid social instability and ensure sustainable development.

TECHNICAL – Solutions include 1) technological innovation, development and adoption, 2) improved operations to reduce water use and impacts in water quality, and 3) integrated planning to assess constraints and synergies, minimize costs, maximize welfare.

Thank YouDiego J. Rodriguez, Senior Economist, World Bankdrodriguez1@worldbank.org

http://www.worldbank.org/thirstyenergy