Financial Implications of Parched Power: Insights from an Analysis of Indian Thermal Power Companies

Climate-related risks pose inevitable threats to investors and the assets in which they invest. Institutional investors have become increasingly concerned about-climate-related risks, but physical risks, which represent the direct physical impacts from climate change, are not well understood.

Water-related risks are prominent physical risks that affect a wide range of industries, including the thermal power sector. Using traditional financial analysis and econometric techniques, this paper introduces a new methodology to quantify the financial impacts of water shortages on India’s thermal power sector. The methodology leverages asset-level data from WRI’s 2018 working paper, Parched Power: Water Demands, Risks, and Opportunities for India’s Power Sector, and combines it with geospatial physical risk and corporate financial data to analyze the financial impacts of water-shortage-induced electricity generation outages at five publicly listed Indian thermal power companies from FY 2014-2017. It also uses outputs from Intergovernmental Panel on Climate Change (IPCC) climate models to project the impact of future water shortages on electricity production at the five companies.

This paper serves as a tool for investors to more effectively understand, analyze, and engage with thermal power companies on water-shortage risks.