Water is essential for nearly every form of energy production, while energy is required to extract, transport, treat, and distribute water. As competition for both resources increases, water scarcity can constrain energy generation, and energy shortages can limit water availability. Understanding these dynamics is critical for assessing infrastructure resilience, investment risks, and sustainable development under growing resource constraints.
- Water for energy: Water is used in electricity generation (thermal plant cooling, hydropower), fuel extraction (fracking, mining), and biofuel crop irrigation.
- Energy for water: Energy powers water extraction (groundwater pumping), desalination, distribution networks, and wastewater treatment.
- Compounding scarcity: Limited water availability weakens energy production, while energy limitations restrict water access, creating systemic infrastructure risks.
Water consumption by sector:
- Thermal power generation is the largest industrial water user globally.
- Hydropower generation is entirely dependent on water availability and flow variability.
- Energy production accounts for roughly 10% of total global freshwater withdrawals, but the share is much higher in water-scarce regions.
Emerging stress points:
- Droughts are forcing thermal power plants to shut down or reduce capacity, particularly in the U.S., Europe, and parts of Asia.
- Growing urbanization and agricultural intensification are raising energy demand for water pumping and treatment.
- Desalination growth in arid regions is intensifying energy dependency and exposing new vulnerabilities to energy price fluctuations.
Environmental and Social Criticisms:
Thermal pollution: Discharge of heated water from power plants into rivers, lakes, and coastal zones raises ecosystem temperatures, harming aquatic life and degrading water quality. Elevated temperatures lower dissolved oxygen levels, leading to aquatic die-offs, ecosystem destabilization, and reduced resilience to climate variability. Cumulative thermal loads in industrial regions have permanently altered local hydrology and ecosystem function.
Over-extraction: Water-intensive energy projects, such as hydraulic fracturing, coal mining, and oil sands operations, deplete local aquifers and stress regional water budgets, particularly in semi-arid and drought-prone areas like the Permian Basin (U.S.) and Vaca Muerta (Argentina). Fracturing operations remove millions of gallons of freshwater per well from the hydrological cycle, permanently reducing groundwater availability for agriculture, ecosystems, and urban centers.
Desalination impacts: Desalination plants discharge hypersaline brine and chemical byproducts into coastal environments, increasing salinity levels and harming marine biodiversity. Brine disposal can disrupt fisheries, coral reefs, and benthic ecosystems essential for coastal stability. In addition, desalination is highly energy-intensive, linking freshwater production to rising carbon emissions unless powered by renewable energy sources, and creating new vulnerabilities tied to grid reliability.
Geopolitical and Market Risks:
Infrastructure stress: Droughts reduce available cooling water for thermal plants, while energy shortages disrupt water pumping, treatment, and sanitation systems. This creates cascading infrastructure failures, particularly in regions with centralized grids and aging assets. Integrated water and energy resilience planning is increasingly recognized as a national security priority in both developed and emerging economies.
Investment volatility: Water constraints delay or cancel large energy projects, particularly thermal and hydroelectric developments. Financial models that fail to account for water scarcity systematically underestimate project risks and long-term asset volatility. Rising insurance costs, stranded asset risks, and tightening ESG requirements are forcing energy investors to integrate water risk into portfolio management and due diligence processes.
Competition between sectors: Escalating competition between energy, agriculture, and urban sectors for limited freshwater supplies is reshaping legal water allocations and regulatory frameworks. Energy developers are encountering higher permitting risks, legal challenges, and operational delays where traditional water rights are being contested or reallocated, particularly in drought-prone and politically sensitive regions.