Institutional adaptation to cooling water scarcity for thermoelectric power generation under global warming

Abstract

This article studies adaptation of institutional arrangements for water regulation to climate change. Power plants occasionally need to curtail production during heat waves, causing economic losses and putting power quality at risk. To avoid exacerbation of this problem due to climate change, the regulation of heat emissions from power plants may require adaptation. The analysis abstracts a mathematical model from a case study of the German Rhine catchment. The model compares three options for regulation with an analysis of transaction costs, and balances them with costs from environmental externalities. First, long-term and site-specific temperature caps lead to the comparatively lowest sum of social transaction and production costs if heat waves only increase in intensity. Second, a dynamic heat load plan performs better if heat waves only increase in frequency. Third, if both intensity and frequency of heat waves increase substantially, a specific contract between the environmental regulator and electricity producers (the minimum power plant concept) performs comparatively best. The article highlights economies of scale in transaction costs, and shows how institutional adaptation can depend on the speed of climate change.