De-risking energy projects by integrating water from the start

Authors: Rod Naylor, Matthew Brannock 
Hydroelectric Dam with flowing water

At a glance

Without water, many energy projects would not be feasible. To be successful in de-risking the energy transition, water must be carefully considered – and early.

Without water, many energy projects would not be feasible. To be successful in de-risking the energy transition, water must be carefully considered – and early.

Water’s place on the energy transition agenda

In a recent research report conducted by GHD, 94% of energy leaders globally believe the current energy crisis is the most severe their market has ever experienced. SHOCKED revealed that the energy sector is battling three distinct, but interconnected, shocks: security, society and climate. 

In the midst of this global and multidimensional crisis, the energy sector must continue to rapidly decarbonise to meet net-zero goals and mitigate the worsening implications of climate change. Water risk is embodied in all three shocks – water security affects the bankability of energy projects, societal shocks are impacted by changing water use and policy, and climate risk is associated with increasing droughts, flood and storms. It is crucial that the energy sector understands the varying and complex risks that must be navigated to catalyse the energy transition, including the impact of rising water risk. 

To be successful in de-risking the energy transition, water must be carefully considered – and early. Water and energy intersect at a number of critical nexus points; for example, water is vital to many forms of energy generation and used in a wide range of production processes. While integral to enabling the energy transition, water has the potential for both positive and negative impacts on energy organisations – energy projects can ‘live or die’ by water.

With water security and water-related risk events rising across the globe, energy companies and projects must assess the level of uncertainty created by ongoing climate change impacts to water systems against the long-term risk and viability of decarbonising energy investments. Not only will climate change impact our water systems, but our rising global population means that competition for water resources will continue to increase, creating complex long-term social and environmental challenges that energy projects will need to manage to remain viable over their lifecycle.

Water risk is complex and multifaceted, impacting communities, economies and environments. For the energy sector that means potential strategic, commercial, operational and reputational risk. To effectively assess and manage the various risks posed by water to projects and businesses, energy projects must plan and account for two particular pinch points:

  1. Water access and security, and
  2. Water by-products or residuals management.

Access: water as a critical ingredient

Industrial blue cooling tower

Many renewable energy projects need sufficient access to water to be successful. Green hydrogen, for instance, which acts as a carrier for renewable energy, requires significant amounts of water for both production and cooling management. To be investable, energy projects need a guaranteed supply of ‘high security’ water. The problem is that high security water is expensive to guarantee and without guarantees, banks and investors are less likely to finance energy developments.

While deciding where to locate energy projects is commonly dictated by logistical factors such as access to transmission lines, ports and skilled workers, water should not be overlooked. Water has the potential to derail otherwise sound opportunities, especially where many energy users or buyers are located. Whether water may be a fatal flaw in an energy project depends on the local water situation, which is different every time. Considering water early in the project lifecycle will help to identify any potential fatal flaws.

There are several water-related factors that can affect the approval process and cost of building and operating energy projects. These include how much water is available, the type of water available, where and how it can be treated, and where and how by-products will be managed.

Managing water availability and security is crucial to de-risking the energy transition. The below graphic illustrates the water demands for existing sectors in the Australian context against those which will support the energy transition. Using data from Net Zero Australia’s report How to make net zero happen, the numbers are representative of a full renewables rollout scenario.

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It’s important to note that Net Zero Australia’s numbers are based on desalinated seawater (10L/kg H2) and not raw seawater, and also exclude cooling. Our numbers are seawater-based and include cooling based on 50% evaporative cooling (53L/kg H2) and 50% dry cooling (26L/kg H2), both with significant recycling of waste streams, with a typical estimate of 40L/kg H2. Another important factor to note is that these graphs do not include water usage from agriculture and municipal water, which is predicted to increase into the future.

For comparison, the graphic below shows global water consumption in the energy sector by fuel and power generation type in the Net Zero Scenario for 2021 and 2030.

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Where large volumes of water are required, energy projects risk being hamstrung by water access and availability. Careful consideration and early engagement with local water authorities and utilities will help to ensure that water is sustainably managed and not diverted away from local communities, industries, environments or cultural needs.

With longer droughts, more frequent floods and worsening storms, there is less certainty and reliability around water. This is changing the way we plan for projects and means there are more factors to consider. Production requiring large volumes of water can be impacted by drought and evaporation, such as pumped hydro and hydropower operations, which are critical to the clean energy mix of some geographies. Less rainfall can reduce the availability of surface water sources, while floods can affect water quality. To address this risk, seawater desalination and recycled water may offer more resilient water sources in terms of yield and quality.

But alternative sources of water do not come without challenges, and potential social and environmental impacts can lead to drawn-out regulatory approval times delaying projects. Seawater desalination, for example, requires suitable sea conditions and access to ocean environments where impacts can be appropriately managed. There are only so many sites that can deliver good quality seawater with minimal social and environmental impacts.

Another factor to consider is how the changing climate and social expectations can impact a project’s bankability. Increasing requirements for climate change declarations and company disclosures to investors necessitate that climate risks must be holistically assessed and transparently communicated. Water is a critical element of regulatory requirements for risk assessment and to bring climate risk quantification into financial markets.

To practically mitigate economic risk, energy projects need to account for shifting weather patterns and climate uncertainty that will inevitably impact water availability over time. These implications and stressors will see investors looking closely at long-term climate risks and how they might impact on future returns.

Waste streams: managing by-products resulting from water use

Aerial view of wave breakers

When thinking about how to effectively pre-empt and manage the by-products of water used for energy production, green hydrogen offers a helpful use case. Water used for hydrogen production and cooling processes can generate waste streams that fall under two categories:

  1. Solids residuals, which are the solid impurities that have been removed from raw water.
  2. Salty waste streams, which include the by-products after water is removed from a brackish or saline water source (through processes like desalination) or concentration of a raw water stream (through processes like evaporative cooling).

A realistic waste management strategy – one that considers waste treatment, minimisation and disposal as well as end-of-life issues – is essential to green light energy projects. Historically, some energy projects have failed to properly manage highly concentrated waste streams, creating an environmental legacy that can lead to negative outcomes. 

What’s more, due to rising water risk, future energy projects will be driven to adopt more complex and potentially saline water sources, which leave behind substantially higher amounts of highly concentrated residual by-products. To mitigate these risks, energy projects must carefully consider and manage waste streams to prevent environmental degradation or habitat loss.

A common issue with many inland energy projects is the inability to release salty waste streams directly into the environment due to the significant environmental impact. In Australia’s Hunter Valley, the Hunter River Salinity Trading Scheme limits the amount of salt that power stations can release because of the environmental impacts. This has resulted in the substantial accumulation of waste salt on site.

Another example is the coal seam gas industry, where the process of accessing natural gas brings brackish water to the surface. While this brackish water is usually desalinated to enable beneficial reuse of the water, the whole process accumulates salts at the surface. The planned industry approach for the brine – which is currently stored and concentrated in hundreds of hectares of ponds – is to crystallise and store the salt in landfill for perpetuity. 

If waste streams are not properly addressed in the planning stages, it is likely that the hydrogen industry will face similar challenges in managing the environmental legacy and cost in the future. There are, in fact, many viable approaches for brine management and disposal that are less likely to leave a negative impact on the environment, potentially helping to de-risk some energy projects. These may include brine injection, co-disposal with other waste streams (such as power station ash), ocean disposal and resource recovery. Each have their respective costs, risks and issues which need to be addressed on an individual basis, based on location.

Early, thoughtful consideration is key

Without water, many energy projects would not be feasible. With climate change and population growth increasing the demand for already limited water resources, energy projects will become more complex and potentially uncertain over the timeframe of the project or investment lifecycle. Therefore, water must be embedded in a project’s feasibility and development stages to underpin their success, de-risk the wider energy transition and meet global decarbonisation ambitions.

Water access and security is crucial to the bankability and ongoing financial asset management of most energy projects. Equally important is the cost of treatment as well as the transport and disposal of waste arising from water systems and use. Energy projects must consider where to locate energy infrastructure based on how much water is available, the type of water available, where and how it can be treated, and where and how the by-products will be managed.

It is critical that solutions to these challenges are tailored to the local context and developed in collaboration with local communities. Through early, thoughtful consideration of water's role in future energy projects, energy companies can successfully navigate the varying and complex risks associated with the energy transition, leaving behind a positive legacy for future generations.