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.