Water and energy: Shifting from nexus to necessity

Authors: Rod Naylor, Lindsey Brown, John Hensman, Don Holland

At a glance

Exploring the impact of rising water risk on the energy transition

Aquanomics, a recent report by GHD, estimated the economic impacts associated with droughts, floods, and severe storms. The key message was that the GDPs of several large, industrialised nations or regions (USA, Canada, China, the U.K. (United Kingdom), the Middle East, and Australia) could expect to lose $5.6 trillion between 2022 and 2050.

Unlocking the power of connection

Aquanomics, a recent report by GHD, estimated the economic impacts associated with droughts, floods, and severe storms. The key message was that the GDPs of several large, industrialised nations or regions (USA, Canada, China, the U.K. (United Kingdom), the Middle East, and Australia) could expect to lose $5.6 trillion between 2022 and 2050. Energy systems alone stand to lose over $237 billion by 2050. While the impact of climate change is difficult to predict with certainty, energy and water systems will be put under increasing strain and pressure in response to variable and uncertain climate systems. Building resilience in these systems will require new measures that enhance adaptive capacity to ensure that significant interruptions due to water-related threats are avoided.

One of the most considerable challenges we face is the over-allocation of water resources. A sobering realisation emerges – this could imperil the future of some green energy technology. These green energy technologies, like green hydrogen and pumped hydro, are looking to harness the power of water within their value chains. Still, regions with scarce water resources face a daunting predicament. How can they unlock reliable and bankable sources of water and energy? This is a make-or-break risk factor for crucial technologies needed for the energy transition.

Water threats are intrinsically tied to geographic locations, whether too much or too little. Every region faces a unique set of challenges. The crux of the matter is this: if water resources and impacts from water threats are mismanaged, they pose a formidable threat which could stall or diminish decarbonisation efforts in our energy systems. The stakes are exceedingly high, and the need for climate action is urgent.

The solution to these challenges is two-fold and can provide immense benefits. By meticulously addressing water-related risks, we can enhance the feasibility of new management practices and infrastructure, attracting new investors and increasing stakeholder buy-in. This will also ensure the long-term sustainability and well-being of our energy and water systems. If this can be accomplished, we can create a win-win situation: reduced financial risk and increased safeguards from shocks for these crucial systems.

As we strive towards a sustainable future, we must embrace comprehensive management practices and innovative technological solutions to reduce our dependence on water and energy systems. By acknowledging the interconnectedness of these two resources, we can work towards a more equitable and resilient future. Our vision of the future must prioritise sustainability, recognising that water and energy are not just mere necessities but the foundation upon which our growth and well-being depend.

Disasters, catastrophes, and uncertainty

Damage to infrastructure from severe storms, flooding, or drought can limit the operational capacity of water and energy networks. When a powerful storm hits or flooding occurs, power and water-treatment infrastructure can be damaged and prove costly to restore. This also creates dangerous situations in terms of public health when water treatment plants go offline, or blackouts occur during extreme heat events.

Long-lasting droughts can imperil water supplies for entire regions. This is not just water used for agricultural and domestic use but also for energy production. Hydropower production can be severely impacted, and cooling water at power plants can become scarce. Elevated temperatures, increased evapotranspiration, and lower soil moisture all decrease the amount of water in local or larger regional watershed areas. When droughts go from short to long-term, more energy-intensive processes for obtaining water, such as desalination, pumping more groundwater, or pushing water long distances through canals and pipelines, are often used by governments and municipalities to ensure that populations have enough water to drink, to irrigate crops, and to generate electricity. These solutions for water shortages also require more significant amounts of reliable energy to be feasible and can therefore create negative feedback loops in the water/energy necessity system.

Rising temperatures are adding additional strain on power grids as more areas and regions require air conditioning to remain habitable during the hottest times of the year. This places extra demands on power grids, which must use more water for generation and cooling purposes. This creates a feedback loop where more CO2 emissions occur because of the rising temperatures, which then increases temperatures creating more demand on power grids. Decarbonising the current energy systems becomes paramount to combatting this feedback loop.

What is certain is that damaging and dangerous natural disasters will continue to occur more frequently, and the deficiencies in our water and power networks will become more exposed and vulnerable to external shocks. Resilience in both systems is crucial, as they are interconnected, and the impact of a shock in one can cascade through the other, amplifying the damage caused. This poses a significant challenge for risk management planning, especially if the truly interrelated nature of both systems still needs to be fully understood. Embracing a water/energy necessity way of thinking can fortify our systems, address management weaknesses, and reduce the uncertainty inherent in these critical infrastructure systems. By building resilience, we can better withstand and recover from the inevitable challenges that lie ahead.

Green power/blue water

Green hydrogen is a revolutionary concept that serves as a vital form of storage for renewable energy, such as wind or solar power. This innovative approach allows for the practical storage and transport of clean energy, enabling its use later or in separate locations. Green hydrogen is remarkable for its potential to facilitate the movement of renewable or ‘green energy’. It creates an exciting possibility for new avenues of energy distribution and use in decarbonising industrial processes like green steel and fertiliser manufacture.

However, it is essential to acknowledge that water plays a pivotal role in green hydrogen production. Water is required for feedstock and cooling purposes, though the latter significantly depends on the location and technology chosen for the hydrogen facility. The type of production's cooling needs often surpasses the amount of water needed for the actual production of hydrogen. Cooling requirements can be five to ten times the water used for the feedstock.

Recognising this challenge becomes the cornerstone for the technical development and optimisation of the hydrogen industry. By enhancing energy efficiency in hydrogen conversion, we can significantly reduce cooling demands and the substantial water quantities associated with it. This presents an exciting avenue for progress, where innovative advancements in the hydrogen sector can reduce overall water usage, positively impacting water resources and sustainability. Innovations in efficiency can help to mitigate the potential strain on water resources and drive the hydrogen industry towards a more sustainable and water-conscious future.

Green hydrogen represents a groundbreaking energy storage and transportation solution. Still, its production necessitates carefully considering water use and impacts on local and regional water resources where facilities are located, mainly if they rely on natural freshwater supply. This results in resolving the challenge of a secure and reliable water supply as a critical factor in selecting locations for hydrogen production facilities, creating a fatal flaw for projects that must adequately address this critical risk in project feasibility and planning stages.

The water/energy necessity on the Colorado River

The status of the Colorado River in the Southwest United States illustrates the complex interplay between water and energy, specifically hydropower. The river provides water and power to forty million people in seven U.S. (United States). States and Mexico. Due to the impacts of a long-lasting drought and over-allocation of the river’s resources, water levels in Lake Powell and Lake Mead behind Glen Canyon Dam and Hoover Dam are declining precipitously. As the water levels decline, the ability to produce power diminishes. If the water level drops below the turbine intake called the power pool, no power can be created. If the water level falls below the dam’s standard outlets, no water can leave the dam at all. This is called a dead pool.

Efforts to shore up water levels in the reservoirs behind the dams require complex negotiations between the two countries, seven states, many Indigenous tribes, irrigation districts, government entities, and municipalities claiming portions of the river’s water. The effects of a dead pool situation would be catastrophic for the people that rely on power generated at the dams, food production, and ecosystems in and along the river. The political fallout would also be unprecedented and require the intervention of the federal government and other managing governmental agencies.

The drought impacting the Colorado River has impacts on both water and energy systems. There is no straightforward way to solve this problem, especially with the many stakeholder groups and NGOs involved in decision-making along the river. This river is a stark example of how water and energy systems can become amazingly complex and how their intertwined nature can have long-ranging and often unforeseen impacts on communities, the natural environment, food producers, and energy generation. This situation is not unique to the Colorado River; similar situations are developing globally; the Nile River and the Mekong River are two other examples where similar situations are happening.

Moving forward

By viewing the water-energy relationship as a necessity and not just a nexus point, we can take a more holistic view of these two crucial elements and build more adaptive, resilient systems. Breaking down the silos between these two sectors can create water and energy-saving efficiencies rather than trade-offs where neither industry wins. Understanding the relationship between the two is critical as we transition our energy systems towards a decarbonised future while navigating the impact of increasing floods, droughts, and storms. If we do this right, we will all win.


Aquanomics explores the economics of water risk and resilience across seven countries and five sectors. Our research reveals that droughts, floods and storms could result in a total loss of USD5.6 trillion to GDP between 2022 and 2050.
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