Managing the water-energy nexus is vital to India’s future – Analysis - IEA (2025)

Strategies to ensure a more resilient power sector

Policymakers will need to contend with a more uncertain future in terms of water availability as climate change is expected to alter the frequency, intensity, seasonality and amount of rainfall. Climate change is also likely to change patterns of energy demand, with greater demand loads due to temperature extremes. The policy actions taken today will determine whether or not water will be a major constraining factor for the reliable and sustainable development of electricity supply. Two key strategic priorities emerge from our analysis.

Shifting to dry and non-freshwater cooling to improve the thermal fleet’s resiliency to water stress

Coal is the incumbent fuel for India’s power generation, and the existing plants (including those under construction) are set to remain a major element in India’s power mix even as renewables dominate new capacity additions. The average age of coal plants in India is around 15 years. Given that the lifespans of these plants normally run to about 50 years, most existing power plants could continue operating for over 30 years in the absence of a major additional policy push. To avoid additional strains on the system arising from water stress, it is essential that operators increase the share of dry or non‐freshwater cooling in new thermal plants, retrofit old ones and make better use of water-recycling.

India is already using non-freshwater cooling in some of its plants. Its third‑largest coal power plant, Mundra UMPP, was built in a drought prone area and uses desalinated seawater for cooling and other applications to avoid aggravating water stress.

The use of wastewater for cooling is another alternative. India’s government has mandated coal plants to use sewage water if they are located close to municipal treatment plants. However, just 5-8% of all coal plants in India have access to treated wastewater and are able to use this water source to completely or partially meet their cooling water needs. Even where wastewater is available, using it can be challenging. In 2016, the government of Maharashtra directed NTPC Solapur to switch to treated wastewater from Solapur town instead of freshwater from the Ujani reservoir. However, water quality concerns, the lack of an existing wastewater treatment facility and competition from farmers using the wastewater for irrigation led to the cancellation of the project. This underlines the importance of engaging different users and taking an integrated approach to water management.

Shifting to dry cooling, or air‐cooled condenser technology, eliminates the need for water. In India, the feasibility of dry-cooling installations, especially in areas with acute water stress, is under exploration. That said, there are important trade-offs to consider: dry cooling has a higher capital cost and reduces the power production by 7-8% as well as the efficiency of the plant. Thus, only 2% of capacity today uses the technology. Its upscaling would require supporting policies, such as dedicated government financing or an adjustment of power prices in water-stressed areas. Another option would be to spread the additional cost of dry cooling across all power plants in the country, favouring the deployment of this technology while causing only a marginal increase in retail power prices, given its low share in the generation mix.

Fully integrating water-energy linkages in India’s technology choices and policies

A preference for clean energy technologies can go hand-in-hand with strategies to alleviate water stress, but these linkages are not automatic and require careful design. Not all low-carbon technologies and fuels have low water requirements. Nuclear, bioenergy and concentrating solar power, all of which play a role in helping India meet its sustainability goals in the SDS, could, depending on the cooling technology deployed, be limited by water availability. Thus, energy planning efforts need to take into account competing water demands today and in the future when considering plant design and location – for example, by prioritising water-stressed areas with ample solar irradiation and wind for the development of new renewable capacity.

Managing water use patterns in other sectors can also support India’s power system development. Agriculture, in particular, can serve as an important power sector balancing tool. In Gujarat, agricultural pumping accounts for more than 20% of the state’s electricity demand, and shifting this load to the daytime would help align peak demand with solar output. This is possible because the state has a dedicated agricultural feeder system, which allows the interruption of agricultural supply without impacting other consumers. Shifting today’s predominantly night‐time scheduling to the day would reduce the start‐up needs from thermal generation sources by around 40%, and cut operating costs by about 10%.

Another promising option for power sector balancing is pumped-storage hydroelectricity, which involves pumping from a reservoir at a lower elevation to an upper storage facility during periods when there is excess power generation. When this trend reverses and there is demand for electricity, the upstream reservoir releases the water for generation purposes. In India, about 2.6 GW of pumped hydro storage are already operational, with another 3.1 GW under construction and proposals for further 8.9 GW on the drawing board. This technology can constitute a cost-effective way of providing storage capacity, with limited energy losses, and help to manage power supply both for peak demand hours and longer duration needs.

Our analysis in the new India Energy Outlook underlines that India’s energy choices have to take into account water availability and competing water demands. The same applies to its broader development priorities, given the strong synergies that exist between the UN Sustainable Development Goals 6 (water and sanitation for all) and 7 (energy for all). India’s energy future is tied to its water future. The existing and potential future water needs of the energy sector have to be an integral part of India’s energy strategy.

The IEA would like to thank the Council on Energy, Environment and Water (CEEW) for its collaboration on the energy-water analysis and acknowledge the contribution ofKangkanika Neog and Surabhi Singh to this work.

Managing the water-energy nexus is vital to India’s future – Analysis - IEA (2025)

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