 Economic and financial consequences of water risks: The case of hydropowerChiara Colesanti Senni, Skand Goel and Adrian von Jagow Ecological Economics, 2024, vol. 218, issue C Abstract: Reduced water availability poses risks for many economic activities. This paper studies how water risks affect hydroelectricity generation in Europe and the US and whether these risks are priced in by financial markets. To this end, we build a novel dataset for the period 2015–2022, which combines plant-specific hydroelectricity generation with geo-specific water physical risks and equity returns. We find that water risks, measured using model-based aggregate water risk metrics as well as precipitation anomalies, are significantly associated with reduced electricity generation, although the effect disap- pears after two months. We then link the power plants in our sample to the equity returns of their owners to investigate whether financial markets adequately price water risks. Using a portfolio sorts approach, we find weak evidence of a negative risk pre- mium. Given the real negative effect of water risks on generation, we conclude that the lack of a positive risk premium amounts to mispricing of water risks by financial markets. Keywords: Hydroelectricity generation; Water risks; Risk premia; Geospatial data; Portfolio sorts; Financial risk; Mispricing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:218:y:2024:i:c:s0921800923003117 DOI: 10.1016/j.ecolecon.2023.108048 Access Statistics for this article Ecological Economics is currently edited by C. J. Cleveland More articles in Ecological Economics from Elsevier |
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