The Thirst for Power: The Impacts of Water Availability on Electricity Generation in China

Economic development under restricted resource availability has become a com-plex challenge for both developing and well-established economies. To main-tain a sustainable electricity supply and mitigate the impact of water shortage on economic development, it is therefore important to understand how utility firms respond to the change in water availability and unpacks the underlying mecha-nisms of power outage. By pairing plant-level information with the fine-scale grid monthly meteorological data, we find significant plant-level technology substi-tution in response to water scarcity: a one-standard-deviation decrease in water availability causes an approximate 205 GWh decline per hydro power plant, a 145 GWh increase per nuclear plant, and a 28 GWh increase per coal-fired plant. This water-induced technology substitution takes place within the grid, and we do not identify cross-grid adjustment. Our estimation shows that the technology substitu-tion is associated with a hidden increase in carbon emission up to 32000 tons per year by plant, resulting in an additional cost of 0.18 million USD. Water scarcity slows down the transition towards renewable energy.