Thirsty Plants:The Financial Impacts of

Water Scarcity in Emerging Asia

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World Resources Institute

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“Environmental Intelligence for Tomorrow’s Markets”

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Presentation Overview

• Water Constraints in Emerging Asia

• Food & Beverage Processing

• Power Generation

Extreme Scarcity<500

Scarcity500-1,000

Stress1,000-1,700

Adequate1,700-4,000

Abundant4,000-10,000

Surplus>10,000

Ocean/Inland Water

No Datam3/person/year

Sub National Water Scarcity 2025

With permission from Coca Cola

Water stress and scarcity: the next big issue

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India already in trouble

SECTOR #1: Food & Beverage ProcessingWeeding Risk: Climate Change & Water Scarcity Impacts on

the F&B Sector

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Food & Beverage water risks span the supply chain

Commodity price spikes Reputational riskWater quality regulations

Contamination IssuesProcessing disruptions Legal risk

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Low

Mag

nit

ud

e o

f Fin

an

cia

l Im

pact

Likelihood of Occurrence High

Processing Costs

Agricultural Crop

Prices

CommunityRelations

I ssues

AnimalYields

Food SafetyProblems

Low

Hig

h

Agricultural Inputs

Operating Efficiency

Reputation

Value Driver:

How might these risks play out?

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Aquaculture

Beverages

Dairy/ Poultry

Edible Oils

Sugar

Confectionary

Starch

Processing Costs

Food SafetyProblems

Agricultural Crop Prices

CommunityRelations

IssuesAnimalYields

Agricultural I nputsOperating Efficiency Reputation

Potential Magnitude of Financial I mpact

High

Medium

Low

Not Applicable

Note: Please refer to the appropriate sub sector discussion in this report for what products are considered under each of the categories

Impacts vary by F&B sub-sector

SECTOR #2: Power GenerationOver Heating: Water Constraints on Power Generation in Emerging Asia

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Power sector is water dependent

0

1

2

3

4

5

6

7

8

9

10

15

65

115

165

215

265

Consumption

OL = Open-Loop

CL = Closed-Loop

Withdrawals

Dry = Dry or air cooledA

ve

rag

e W

ate

r U

se (

m3 /

MW

h)

Range of Water Withdrawals and Consumption (US)

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Water constraints already occurring in region

Yet financial impacts limited by regulatory protections

Vietnam, 2005: Three months of drought and severe weather caused reduced power production at the eleven hydro plants resulting in a loss of 864 million kWhs.

India, 2008: Low monsoon rainfall led to hydro cuts in Kerala.

India, 2007: Heat waves resulted in power shortages as high as 20% in Maharashtra (and 9% across India as a whole).

India, 2006: Water shortages led to power cuts in Madhya Pradesh.

India, 2004: Floods forced the shutdown of a 1,500 MW hydroelectric plant for seven days due to high silt levels in Himachal Pradesh.

Philippines, 2002: NPC’s Angat Dam faced critically low reservoir levels due to an unusually long dry spell during an El Nino year.

India, 2003: Severely low rainfall caused a decline in hydroelectric power by 12.9%.

Thailand, 2004: Lack of rain reduced power generation in Thailand’s major hydroelectric dams during a period of high electricity demand, nearly causing Thailand’s electricity consumption to nearly outpace production.

Thailand, 2005: EGCO’s largest power plant, Rayong, came very close to running out of cooling water and shutting down in the dry season when cooling water reservoirs fell to only 9% of capacity.

Vietnam, 2006: Droughts caused a reduction of output of up to 200 million KWhs of electricity from key hydropower plants.

Philippines, 2007: Prolonged dry spell during rainy season forced NPC to shut down its hydroelectric Caliraya power plant.

Vietnam, 2008: Water scarcity forced EVN to open the floodgates of three hydro plants to supply water for agriculture equivalent to the loss of 430 million kWh of electricity. EVN lost US$380 million from buying power from more expensive sources.

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Power sector making long-term bets on water availability

0% 20% 40% 60% 80% 100%

Total

Existing

Planned

Percent of Total Capacity

Water Scarce Water Stressed Moderate Water Availability Water Abundant

India: 79% of planned capacity is water scarce or stressed

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Looking ahead: A recipe for water risk

1. Water scarcity increasing

2. Fastest growing electricity appetite

3. Investors taking on more risk

4. Tradeoffs between environmental priorities

0

500

1000

1500

2000

1980 2000 2006 2015 2030

Ele

ctri

city

Co

nsu

mp

tio

n T

Wh

India

Non-OECD Asia(excl. China & India)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1980 - 1990 1990 - 2006 2006 - 2015 2015 - 2030

GD

P G

row

th R

ate

India Non-OECD Asia

OECD World

0

10

20

30

40

Regulated CompetitiveTariff

Captive Regulated-Merchant Hybrid

Merchant

Capacit

y in

GW

s

Existing Planned

0

1

2

3

4

Subcritical PulverizedCoal

SupercriticalPulverized Coal

IntegratedGasification

Combined Cycle

Natural GasCombined Cycle

Wate

r C

on

su

mpti

on

(m

3/M

Wh

) Without CCS With CCS

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Financial Impacts could be significant

RevenuesCOGS

Project Execution

Growth

Load lossesOutages

PermittingWater allocations

Financing

MoratoriumsNew Regulations

Financing

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

95% 90% Base

case

85%

80% 75% 70%

Equity IRR

IRR sensitivity to loss in plant load factor (%)

12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

On time 3m 6m 9m 12m

Equity IRR

IRR sensitivity to delay in commercial operations (months)

Source: HSBC

Source: HSBC

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What can investors do?

Business Model

Water Dependency

Water Security

Are shareholder returns protected

from falling output?

How much water required to maintain

loads?

Is the plant in a water scarce region?

How are the plant’s water supplies secured?

Ris

k L

evel

High - Merchant - Open-loop thermal - Run-of-the-river hydro

- Water scarce or stressed area - History of water-related events - High rate of urbanization/ industrialization in watershed

Medium

- Hybrid (Regulated/ Merchant) - Regulated (high utilization rate required)

- Closed-loop thermal - Reservoir hydro - Supercritical coal - Combined cycle gas

- Reservoir with irrigation commitments - Dependence on seasonal precipitation

Low

- Regulated (no risk from falling output) - Captive - Competitive tariff

- Renewables (excluding biomass and concentrated solar thermal) - Seawater cooling - Wastewater cooling - Air cooling

- Water abundant area - Long term water contract

Water Risk Framework for the Power Generation Sector

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What can investors do?

Questions to Ask Companies About Water Security

I s the plant in a water scarce region? (I f unknown, proceed based on historical events and future trends)

Water withdrawals as a percent total renewable supply, current and projected (M3/person/year)

% of reservoir water committed to other uses

Has the plant ever had a water shortage?

What were the underlying causes?

To what extent are water supplies dependent on regular

precipitation patterns? Glacial melting?

Projected changes to river volumes/levels from climate change

Qu

est

ions

for

Pow

er

Com

pan

ies

Metr

ics

Who/what are the primarycompeting water users?

Are there risks from upstreamor downstream users?

How are water supplies legally secured?

What is the end date and renewal process?

What is the legal strength and sensitivity to political changes?

Relative security of water allocations

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Stay tuned for new research from WRI/IFC/HSBC

Forthcoming

• Food & Beverage

• Power Generation

• Real Estate/Green Buildings

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Amanda Sauer

World Resources Institute

asauer@wri.org

tel: +1 202 729 7708

For more information:

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