Senni, Chiara Colesanti and von Jagow, Adrian (2023) Water risks for hydroelectricity generation. Grantham Research Institute on Climate Change and the Environment Working Papers (394). Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, London, UK.
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Abstract
This paper studies how reduced water availability affects hydroelectricity generation in Europe and the US. We build a novel dataset for the period 2015-2021 that matches information on hydropower plants with geospecific precipitation and water risk (a compound measure reflecting different aspects of water availability). The paper develops two complementary research designs. First, it uses a cross-sectional design that considers changes in hydroelectricity generation in 2021 - a low rainfall year - compared to its historical average. We find that plants located in riskier basins produced less electricity vis-a-vis the historical average compared to their counterparts located in less risky basins. Second, we use a panel design where we exploit changes in precipitation over time. Consistent with our cross-sectional results, we find a that an increase in precipitation is associated with higher levels of electricity generation. The empirical strategies adopted in this paper offer a framework that can be replicated for other sectors and environmental risks. The findings inform the design of the low-carbon transition and the management of environmental financial risks.
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