Power is something we all take for granted and I have been harping on about China’s power elephant here. So of course it is nice to see HSBC’s boldly titled research piece “No Water, No Power: Is there is enough water to fuel China’s power expansion?” This is a brief summary of the 24 page report. All charts in this piece are extracted from the report.
Water fuelled power
Basically, it boils down to this… China plans to add 1.2TW which is more than the total installed power capacity of the US, UK and Australia by 2030 or 5.9x the total installed power capacity of India. That seems like a lot of power but really this just brings its per capita installed capacity up to 1.77kW/person, in line with the current G20 average.
Most of this expansion is in thermal power (coal, gas and nuclear) and hydropower, all of which require water to generate on a daily basis. Water’s role in hydropower is obvious, but we often forget that water is used in thermal power generation for cooling purposes as well as in steam-drive turbine generators. In fact, 97% of power generated in China is reliant on water today. China’s big renewables drive only manages to reduce water-reliant power to 87% by 2030. That is still a large amount of power that requires water to fuel. In the US, power generation is the largest user of water, accounting for 49% of total water use. We estimate that less than 10% of water is used by the power sector in China today. So China has a long way to go.
Double whammy for industry
“Without upfront action now, we believe the risk remains and future assets could be left stranded high & dry”
HSBC No Water, No Power Report
Industry faces a double whammy exposure to water and electricity. Industry is the largest guzzler of electricity at using up over 80% of electricity generated. Industrial water use is also projected by HSBC to be the fastest growing water segment vis-à-vis agriculture and municipal use between 2010-2020. Moreover, it is the water scarce provinces with a combined Gross Regional Product (GRP) accounting for 45% of National GDP that use almost 50% of the electricity. As usual it depends on which province you are in…
Provincial matters: The Dry 11 have it tough
Of course, it’s Sod’s law when it comes to distribution of resources (be it water, arable land, ore reserves) and policy targets amongst provinces. The report highlights:
- Almost all of the Dry 11 have higher than national average ammonium nitrate and COD targets
- Most of the Dry 11 have low annual growth allowance in provincial water usage quotas
- The Dry 11 are highly reliant (>80%) on coal-fired power
- The Dry 11 also unfortunately account for 47% of ensured coal reserves and therefore not surprisingly so does 47% of existing coal-fired capacity
- Why is this a problem? One tonne of coal requires an estimated 3,000-11,500 litres of water to produce
- In case you are still not convinced, China is expecting to add +453GW of coal-fired capacity by 2020, equivalent to twice Russia’s 2009 power generation capacity
Total installed capacity expansion is aggressive in water scarce regions as shown in the chart below:
Hydropower double trouble: climate and geopolitical risks
Not only did floods and droughts cause disruptions in hydropower generation, the reports go on to say that China’s reach for energy security with +568GW of hydropower by 2030 (2.7x power generation capacity of India), may leave China no choice but to dam the Mekong, Salween and the Brahmaputra rivers, which run through Cambodia, Laos, Myanmar, Thailand, Vietnam and India. China is already constructing eight dams along the Lancang section of the Mekong River, much to the chargin of downstream nations. (More on hydropower’s relationship with climate in “Climate Change & Hydro: Mutually Damming”)
The waterscape is a-changing: 11 Provinces at Risk identified
“Water & power risks need to be considered by financiers, investors and companies as a core feature of capital expanditure plans”
HSBC No Water No Power Report
The water landscape is shifting: : physical, economic and regulatory changes are afoot. Climate change and pollution only serve to exacerbate water scarcity. So as water resources fall, water use is on the rise with growing affluence in China. The report warns that limited resources, new central water quotas and provincial caps could force a change in economic mix and eleven “Provinces at Risk” are identified including economic powerhouses Guangdong, Jiangsu and Shandong as well as Beijing, Tianjin and Shanghai, which incidentally has to reduce water by a -6.5% p.a. by 2015.
Can these Provinces at Risk manage their energy and water targets? Project financiers, investors and companies beware: know your water risks or run the risk of being left high and dry.
Want more on energy options: coal v. gas, biofuels, renewables? Check out:
- Water: Shaping China’s Food & Energy Choices
- Is Fracking the Answer to Water Scarce China?
- Climate Change & Hydro: Mutually Damming