Water Woes Increase for China’s Power Industry

Between now and 2030, China will be adding as much new power capacity as the US, UK, and Australia combined use today, according to calculations from HSBC. That is a staggering amount.

But there is a catch: Generating electricity requires water, and Chinese supplies are increasingly running short. Whether it is water used to cool nuclear power stations, in coal-washing, steam turbines, or solar panel factories – everything that generates electricity needs water at some stage.

According to a new report from HSBC and consultancy China Water Risk, water shortages are set to play a bigger role in shaping China’s energy choices.Already, concerns about water supply have called into question some of China’s energy ambitions.

China’s plannedcoal gasification plants and coal-to-liquids plants could suffer if there is insufficient water.
China’s water scarcity is already extreme – available water per capita is a mere quarter of the world average, according to the World Bank. Many of the driest parts of the country are also centres of industry, including the provinces of Hebei, Shandong and Shanxi.

According to the HSBC report, water shortages could one day become so severe that industrial plants might be forced to relocate away from dry areas; 45% of China’s GDP is produced in water-scarce provinces. Facilities may have to relocate because arable land cannot be moved, and water quotas and pollution reduction targets could be enforced more strictly than in the past.

Water and power risks need to be considered by financiers, investors and companies as a core feature of capital expenditure plans. Project financiers should consider these resource shortages before funding assets; investors should examine the effects of potential water shortages on facilities located in water-scarce provinces; and companies should be more conscious of water quotas and pollution targets as they strive to make operations more efficient.