August 06, 2026 • 6 min read
Water risk in the energy transition: Why it makes or breaks projects
Michael Butcher
For owners, operators and developers bringing energy transition projects to life, water can make or break a project. This mismatch between ambition and water reality is one of the most underappreciated risks in the global energy transition. The energy transition doesn’t eliminate water demand; it reorganizes it.
A hydrogen plant without a secure, socially acceptable water supply isn’t a viable hydrogen plant. A critical minerals processing facility that draws down a stressed aquifer will face regulatory refusal, community opposition or both.
Water-intensive activities like conventional thermal power stations and oil and gas processing are being replaced by others like green and blue hydrogen production, battery manufacturing, critical mineral processing, and data centers. Each has distinct water quality, quantity and reliability requirements and must compete for water within catchments that are already under increasing stress.
This is one of the most underappreciated risks in global energy project development, but one that can be managed if taken seriously early enough.
Key takeaways
- Many energy transition projects have significant water requirements.
- Water is a project delivery risk, not just an environmental one. Water sourcing, permitting and stakeholder engagement can add one to three years to a project when water access is treated as an afterthought.
- A fit-for-purpose sourcing approach that puts advanced recycled water first reduces regulatory exposure and social risk.
- Catchment-scale thinking separates projects that secure social licenses from those that lose it.
- Early investment in water stewardship at concept stage is what makes the difference between a viable project and a stranded asset.
The transition reorganizes water, it doesn’t reduce it
Electrolysis for green hydrogen requires between nine and 11 liters of demineralized water per kilogram of hydrogen produced as direct feedstock. In arid regions relying on evaporative cooling, total water demand – including auxiliary systems and treatment losses – can reach 40 to 60 liters per kilogram.
These numbers matter because many hydrogen, battery and critical mineral projects are proposed in precisely the regions that face the greatest water stress. The Pilbara, the Middle East, North Africa and parts of Latin America are amongst the most ambitious areas for energy transition development – they're also the most water constrained.
Data centers present a different version of the same challenge, with many facilities reporting water usage effectiveness ratios of 0.9 liters per kilowatt‑hour of IT load. As AI workloads accelerate, so does the water intensity of digital infrastructure. The projects are different the underlying tension is the same.
Not all water is equal
The energy transition doesn’t just require more water, it requires the right kind of water. Many processes, like hydrogen production through electrolysis, need high quality demineralized or ultra-pure water.
Insufficient water quality can lead to scaling and fouling, reduce efficiency, increase maintenance costs and damage critical equipment.
This has real implications for project design. A fit-for-purpose approach matches the quality of the source to the quality required by the process:
- Advanced recycled water (treated wastewater or industrial discharge) is preferred where available as it has the lowest competition with existing users.
- Treated groundwater or surface water can be used where allocations are available, and environmental flows are met.
- Brackish groundwater via reverse osmosis avoids competition with potable or agricultural supply.
- Seawater desalination provides reliable supply but comes with added energy and infrastructure considerations. This is most appropriate when other options aren’t viable.
Using fresh or potable water for industrial-scale production is increasingly difficult to justify from a social, regulatory and reputational perspective.
Communities and regulators will question why an industrial facility is consuming drinking-quality water when alternative sources exist.
There’s also significant opportunity to reduce overall demand through circular water management. By recovering and reusing water streams such as cooling water, condensate and treated wastewater, projects can reduce net water use by 30 to 60 percent, depending on process configuration and local climate conditions.
Shared water, shared risk
Energy transition projects don’t operate in isolation. They share water resources with communities, agriculture, ecosystems and other industries.
Even the most water-efficient operations can face material risk if catchment-level dynamics, including cumulative demand from co-located projects, climate variability and regulatory change aren’t understood and managed.
Many governments are encouraging co-location of energy transition activities in industrial hubs or special economic zones. While this offers infrastructure and logistics efficiencies, it also concentrates water demand in specific catchments. When a hydrogen production facility, an ammonia plant, a critical minerals refinery and a data center all draw from the same aquifer or river system, the combined demand may exceed the sustainable yield of that system – even if each individual project's water use appears manageable on its own.
Projects that fail to secure reliable, long-term water access – or do so in ways that are socially or environmentally unacceptable – can risk becoming stranded assets.
Multiple projects in the mining and energy sectors have been delayed, scaled back or abandoned due to water access disputes, regulatory refusal of water licenses or community opposition to water abstraction.
The Alliance for Water Stewardship (AWS) International Standard now requires context-based water targets and assessments of shared water challenges – a clear sign that regulators and investors expect more than site-level water efficiency.
What resilient projects do differently
Consider two hypothetical projects of identical scale: 100 megawatts of electrolysis, producing approximately 15,000 tonnes of hydrogen per year, both proposed in the same semi‑arid region.
The first project sources advanced recycled water from a nearby municipal wastewater treatment plant, supplemented by a small brackish groundwater desalination unit. It uses air-cooled or hybrid cooling to minimize evaporative losses and establishes a water stewardship partnership with local water utilities, agricultural irrigators and the local community. It secures social license through early, transparent engagement. Total water consumption: approximately 15 liters per kilogram of hydrogen.
The second project draws fresh groundwater from a stressed alluvial aquifer shared with irrigators and town supply. It uses lower-cost evaporative cooling with no water stewardship engagement. The community first learns of the water abstraction plans through a regulatory notice and the water license is refused due to cumulative impact assessments showing aquifer drawdown. The project is delayed by more than two years, with a desalination retrofit adding an estimated US$30 to 80 million. Total water consumption: approximately 55 liters per kilogram of hydrogen.
The difference between the two projects isn’t technology – the electrolyzers are identical. The difference is stewardship.
Water stewardship starts at concept stage
Water can’t be treated as an afterthought. Across the mining, oil and gas and water sectors, experience consistently shows that water sourcing, permitting and stakeholder engagement can add one to three years to project schedules if not addressed early. For capital-intensive energy transition projects operating on tight financial timelines, this kind of delay can be the difference between a viable project and a stranded asset.
Projects that invest in water stewardship early – integrating it from the concept stage into feasibility and financial planning – are better positioned to move faster. They secure earlier regulatory approvals, reduce operational risk and build stronger social license.
Investors and lenders are increasingly evaluating water performance alongside carbon, reflecting the growing recognition that both are critical to long‑term project viability.
Delivering this requires an integrated approach across the project lifecycle, from catchment‑scale water resource assessment and concept-stage source selection to detailed design of desalination, water treatment and recycling systems and long-term operational water management. It also demands a combination of water engineering with environmental science, stakeholder engagement and regulatory strategies to develop water solutions that are technically robust, socially responsible and financially resilient.
Water stewardship isn’t a constraint on energy transition ambition. It’s what turns ambition into delivery.
Author bio
Michael Butcher is a Senior Principal Environmental Engineer with over 25 years’ experience delivering integrated water solutions for complex mining and energy projects. He specializes in catchment-scale water strategy, water balance modelling and regulatory approvals, helping clients reduce water risk and secure project viability in water constrained regions.
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