thirsty plants: the impacts of water scarcity on the food and beverage and power sectors in asia
DESCRIPTION
Amanda J. Sauer (Speaker 3)Senior Associate - World Resources Institute - United States of AmericaTRANSCRIPT
Thirsty Plants:The Financial Impacts of
Water Scarcity in Emerging Asia
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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
tel: +1 202 729 7708
For more information:
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