Home > Property & Casualty > CA drought and the water energy nexus

CA drought and the water energy nexus

folsom_lakeIn 1955, Mormon Island, a gold-rush era mining town in Northern California, was flooded to create the Folsom Lake and Dam to supply drinking water and hydroelectric power to residents in the area. Today, due to historically low water levels, the abandoned town is resurfacing, with building remnants and artifacts turning up in the lake’s receding water after being submerged for nearly 60 years. While tourists are flocking to the site, it is one of the many ominous symbols of the worst drought in California history.

With an increasing number of lakes, rivers and reservoirs at record low levels, hydropower plants like the one at Folsom, are being forced to reduce or discontinue hydropower generation. As a result, California utility companies are now turning to thermoelectric power plants to make up the shortfall. Thermoelectric power plants, which include coal, nuclear, and natural gas generation, use over 200 billion gallons of water every year in the U.S. in for operation and cooling. Thus perpetuating the state’s drought issues with more water needed for power generation and the resulting increase in CO2 emissions from these plants contributing to changes in climate and weather patterns.

In all, 50% of the water withdrawn in the U.S. every year is used for thermoelectric power generation. Energy production ranks second only to agriculture in the amount of water used in the U.S. each year. Other water intensive non-renewable energy sources include, hydraulic fracturing which uses 2-5 million gallons of water for every well and oil refining which uses 1-2 billion gallons of water each day in the US. By comparison, renewable energy sources such as wind and solar PV use virtually no water to generate electricity.

In order to combat this crisis, California has no choice but to find alternative solutions, including innovation around water technologies for energy and other water intensive industries. Luckily, numerous companies are developing water technology solutions, including water reuse technologies, desalination, efficiencies of cooling systems and water infrastructure, waste heat recovery and water systems real-time data monitoring.

Like other industry pioneers, these companies tend to be early stage groups with limited resources, often having to partner with larger companies in industries and at locations that can elevate their risk exposure. They may also lack negotiating leverage when entering into contracts with suppliers, contractors, owners and developers, thus taking on additional risk associated with property damage, lost revenue, environmental damage, professional services and/or the associated insurance costs. Furthermore, the risk landscape and the implementation of a new or unproven technology by a company with limited experience, limits the pool of insurance carriers willing to underwrite these risks and can lead to increased insurance costs.

It’s important that companies developing innovations in water technology understand the various risk factors that accompany these solutions. It’s also critical that their insurance carriers have the necessary information to underwrite these risks appropriately, as any areas of uncertainty could lead to higher costs. WGA’s energy and technology experts are experienced in presenting new and complex technologies to the underwriting community in a way that is easily understood within the context of other risks that they assume. Our broad range of energy and technology clients, which include power producers, project developers, desalination and wastewater treatment plants and clean technology manufacturers, enabled our team to become well-versed with clients who have complex needs and dynamic business plans.

About the Author

Matthew Rist is an Assistant Vice President and a member of WGA’s Renewable Energy and Clean Technology team at William Gallagher Associates. He provides risk management and insurance solutions to clients in the energy and clean technology areas, working closely with them to help design, negotiate and implement comprehensive insurance programs. 

617.646.0347 | MRist@wgains.com | Connect with Matt on Linkedin

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