China is facing some tough decisions as the water-energy crunch grows more severe and serious questions emerge over its ability to keep new coal-fired power stations running in some of the country’s most important regions.

A new report from Bloomberg points out that China’s top five power companies could find themselves facing financial and capacity difficulties as they try to expand coal-fired generation in China’s dry regions and the government plans to cap total water consumption.

China’s energy needs, and its generation capacity, tend to be concentrated in the dry northeast of the country. The northeast is trying to operate 60% of China’s thermal power capacity in a region that has only 20% of China’s water.

The report says the coal industry already consumes around 15% of China’s scarce water supplies, although other studies have put this as high as 20% and the government plans to cap national water withdrawal at 700 billion cubic metres per annum by 2030. Whichever is the true figure, the competition for scarce water between the power sector, industry, agriculture and domestic use is set to become fiercer. Aquifers in North China are already severely depleted by unsustainable withdrawals.

If the power sector is to continue to expand, it will have to make heavy investments in increased efficiency and new technologies. The water energy crunch could also give a boost to renewables such as wind and solar and is likely to strengthen the case for renewed investment in the controversial areas of hydropower and nuclear power.