April 11, 2023
Looking For An Oasis in the Desert
Today, the Federal Government proposed cutting water allotments from the Colorado River evenly by 25% from all Lower Basin states, resulting in across-the-board cuts that affect industrial, agricultural, and individual customers.
In 2022, the Lower Basin States of California, Arizona, and Nevada experienced their first water shortage year as demand exceeded what the Colorado River could supply to the key reservoirs of Lake Mead and Lake Powell. This means that more water was taken out of the lakes than was replenished.
This doesn’t come as a surprise. Research from the University of California, San Diego shows that climate change will significantly increase the chances of exhausting the reservoirs at Lake Mead and Lake Powell. Making matters more complicated, power consumption is projected to grow 14% by 2040 and 22% by 2050, driven by increased demand for A/C, EV charging, and a growing population in the Sun Belt - and electricity generation requires significant amounts of water.
How does this affect you:
Utilities operations teams will need to evaluate their water usage, ensuring that equipment is operating at maximum efficiency. They will also need to invest in near-term fixes to reduce water consumption at existing facilities.
CFOs and their capital planning teams need to begin planning for long-term capital investments to meet customer demand for energy using technologies that reduce water consumption.
Without any changes, Arizona utilities will need to find additional sources of water - close to 500 billion gallons in the worst case through 2050 - to meet the additional demands.
Graph: Data Analysis by Actual. Source: IEA “World Energy Outlook 2019” and EIA “Form EIA-923”
As electricity demand increases, the gap between water availability and water consumption will grow. We looked at two different scenarios and examined what would have to happen to keep the chance of Lake Mead running dry to less than 10%:
Scenario 1 (Natural Variability): If nature runs its course, without considering the impacts of climate change, states will have to cut water consumption by 30% to 60%.
Scenario 2 (Climate Change Impact): If the flow of water in the Colorado River decreases by 20% flow, states will have to cut water consumption by 55% to 85%.
Consumption from Lake Mead and the Colorado River needs to be decreased even if the impacts of climate change are not considered.
This situation represents an acute risk for utilities, which heavily rely on water to generate electricity. As a result, utilities must prepare for the growing demands (including an increase in EV adoption, population growth, etc):
Reduce the amount of water used to generate electricity. Traditional wet-cooled power plants lose 60% to 90% of incoming water due to evaporation. Although initial CapEx is high, hybrid or retrofitted dry cooling systems increase efficiency and decrease overall water consumption.
Reuse water. Utilizing recycled water within the plant coupled with wet-cool condensers limits unnecessary discharge and reduces freshwater consumption.
Finding alternative sources of energy that are less reliant on water. Curtailed solar energy can be used to create green hydrogen, which can be transported to where power generation is limited due to a lack of water. Energy facilities will be rewarded up to $3 per kilogram of green hydrogen through the IRA, making this especially attractive.
The federal government will step in to restructure water rights as states have yet to reach a consensus on overall and individual water cuts. Regardless of states’ senior and junior water rights, Lower Basin states will ultimately be affected by the cuts all-across the Colorado River. Actual’s Knowledge Base provides a consistent place to keep up to date with the ever-changing regulations that inform key decisions.
Investing in energy efficient infrastructure will not only decrease water consumption, but also lead to long-term savings, which is crucial, more than ever, in a time when our water supply is running dry.
Until next time,