Modelling the water energy nexus: should variability in water supply impact on decision making for future energy supply options?

Abstract. Many countries, like South Africa, Australia, India, China and the United States, are highly dependent on coal fired power stations for energy generation. These power stations require significant amounts of water, particularly when fitted with technology to reduce pollution and climate change impacts. As water resources come under stress it is important that spatial variability in water availability is taken into consideration for future energy planning particularly with regards to motivating for a switch from coal fired power stations to renewable technologies. This is particularly true in developing countries where there is a need for increased power production and associated increasing water demands for energy. Typically future energy supply options are modelled using a least cost optimization model such as TIMES that considers water supply as an input cost, but is generally constant for all technologies. Different energy technologies are located in different regions of the country with different levels of water availability and associated infrastructure development and supply costs. In this study we develop marginal cost curves for future water supply options in different regions of a country where different energy technologies are planned for development. These water supply cost curves are then used in an expanded version of the South Africa TIMES model called SATIM-W that explicitly models the water-energy nexus by taking into account the regional nature of water supply availability associated with different energy supply technologies. The results show a significant difference in the optimal future energy mix and in particular an increase in renewables and a demand for dry-cooling technologies that would not have been the case if the regional variability of water availability had not been taken into account. Choices in energy policy, such as the introduction of a carbon tax, will also significantly impact on future water resources, placing additional water demands in some regions and making water available for other users in other regions with a declining future energy demand. This study presents a methodology for modelling the water-energy nexus that could be used to inform the sustainable development planning process in the water and energy sectors for both developed and developing countries.