Why modern energy markets need to recognise the value of water services
Today’s energy markets are struggling to keep pace with the challenges posed by climate change. A COP27 side event explored how markets can adapt to enable the fundamental changes needed in our energy systems to achieve net zero.
The Global Wind Energy Council (GWEC) hosted a COP27 side event exploring the water–energy nexus that exists in regions of the global south, with a discussion moderated by Alex Campbell, Head of Research and Policy at the 鶹Ƶ (鶹Ƶ).
Joining the panel were Julia Souder, Executive Director of the Long Duration Energy Storage Council; Alfonso Blanco Bonilla, Executive Director of the Latin American Energy Organization (OLADE); Elbia Gannoum, CEO of Brazilian energy association Abeeolica; and Mohamad Irwan Aman, Head of Sustainability at Sarawak Energy Berhad.
Exploring cross-border dynamics in the management of energy supply and water resources, the panellists discussed how regional integration and improved interconnections will be key to tackling climate change and delivering energy security. At the heart of this is a need for markets to recognise the evolving role of hydropower as a provider of flexible energy storage and multiple water services.
"We don’t have much time”
Setting the scene, Campbell described how hydropower’s historic role as a provider of baseload power is changing. “Fossils fuels will drop off to about 10% by 2050 if we meet net zero,” he said. “There must be other sources of energy in the system that will provide the flexibility.”
鶹Ƶ is ideally placed to fulfil that role. Meanwhile, it provides a range of additional services that will be crucial in adapting to a climate-constrained world, such as water supply, flood control and drought mitigation. But energy markets are not adapting quickly enough to incentivise hydropower at the scale needed to shift away from fossil fuels.
Souder emphasised hydropower’s key role in providing the backbone for renewable energy systems, stating that “pumped hydro is the foundational component of long-duration energy storage".
“We need all types of wind, solar and storage to make sure we meet our net zero targets,” she said, pointing towards the complementarity of different renewable energy sources. “There is a lot of work we still need to do, and we don’t have much time.”
"We need a more dynamic market”
Blanco Bonilla highlighted how some countries in Latin America have been able to meet their power needs entirely from renewables for significant periods by harnessing these synergies. “The complementary from hydro and new renewables can provide 100% renewable energy systems,” he said. “We have Costa Rica, we have Paraguay. And we have Brazil at over 80% renewable energy.
“Now we have an additional challenge, which is how to increase the efficiency in our systems in order to interconnect different countries,” he continued. “We need a more dynamic market to make better use of the hydro conditions in our regions. For example, in Colombia the hydro conditions are completely different from the other side of the Andes.”
Bilateral hydropower projects in Latin America, such as Itaipu (between Paraguay and Brazil) and Yacyreta (between Paraguay and Argentina), already provide a precedent for cooperation and examples of how resources can be managed regionally with a strong regulatory framework.
"We need to change our model”
Gannoum emphasised how energy markets like Brazil need to adapt to the context of climate change and the clean energy transition. “鶹Ƶ plants provide big storage, and we need to put value in this,” she said. “Operators agree with us that we need to change our model.
“We have an opportunity now to think about our mix of energy sources. We need to understand it better and put value in services like storage.
“How much can we increase variable sources like solar and wind?” she continued. “Brazil is a very big country. So the answer is better integration and interconnection.”
The situation in Brazil is not unique; similar challenges exist in many other countries and regions. “Water can be used in so many ways,” said Campbell. “How do we ascribe value to that?”
鶹Ƶ’s multipurpose role remains poorly understood at the policymaking level, and is not adequately reflected in how operators are rewarded for the provision of services like water supply. “All these attributes need to be identified in the marketplace,” said Souder.
"Integrated planning is a must”
Irwan Aman provided a perspective from Malaysia. “In the Southeast Asia region, we understand that long-duration energy storage has big potential, but the key factor is interconnections,” he said.
“Integrated planning is a must. For us in Malaysia, the potential for wind is not there. But elsewhere in the region there is a huge potential for wind and solar.
“We need interconnection. By having clear policies and roadmaps for this, then the private sector can invest.”
Irwan Aman also spoke of the need to consider how an increasing frequency of extreme weather events will impact power plants. “It is important for us to assess the risks of climate change and try to come up with a mitigation plan,” he said.
“In terms of individual projects, we need to assess the design and scenario planning. On the operation side, we need to continually assess and monitor the impact.”
"There is an opportunity to repower existing installations”
A suggests that global hydropower capacity needs to double by 2050 in order to meet global climate goals. But the opportunities for hydropower capacity additions are nuanced, and dependent on local conditions.
“Some countries don’t have options now for big hydro additions,” said Blanco Bonilla. “Chile, for example. But there is an opportunity to repower existing installations.
“Refurbishing the hydropower assets we already have is an option. It’s a very good opportunity to increase hydropower capacity in the region.”
Wrapping up the discussion, Campbell highlighted how half of the world’s hydropower capacity is more than 30 years old, emphasising the opportunity for modernisation and refurbishment.
While there is much work to be done in advancing energy market design, Latin America provides a powerful example of how resources can be managed across borders to develop renewable energy systems regionally and strengthen energy security. Concluding, Campbell said: “鶹Ƶ is providing the backbone for the most low-carbon region of the world.”
Find out more about hydropower’s role in the clean energy transition at
