This post was originally published on Sustainability Matters
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.
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 considered early. Water and energy intersect at a critical nexus point — 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.
To effectively assess and manage the various risks posed by water to projects and businesses, energy projects must account for:
- water access and security
- by-product or residuals management.
Access: water as a critical ingredient
Many renewable energy projects need sufficient access to water to be successful. 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 ‘kill’ what looks like a good economic opportunity, 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.
Where large volumes of water are required, energy projects risk being hamstrung by impact to 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. Production requiring large volumes of water can be impacted by drought and evaporation, such as pumped hydro and hydropower operations, which are critical to 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.
Alternative sources of water do not come without challenges, and considering the social and environmental impacts means regulatory approval times can delay 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 as little social and environmental impact as possible.
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 disclosure for companies and investors mean that long-term climate risks must be assessed early on. Water is a critical element of the 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 the shifting climate uncertainty that will inevitably change over time.
Waste streams: managing by-products resulting from water use
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 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.
Early, thoughtful consideration is key
With climate change and population growth increasing the demand for already limited water resources, energy projects will become more complex and uncertain over the timeframe of the project or investment lifecycle. Therefore, water must be embedded in a project’s feasibility and development stages to de-risk the energy transition and meet decarbonisation expectations.
Water access and security is crucial to the bankability and ongoing financial asset management of an energy project. Equally important is the cost of treatment as well as the transport and disposal of waste arising from water systems and use.
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.
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