Coal-fired power generators in the north, along with coal mining in the same region, were responsible for withdrawing 98 billion cubic meters of fresh water in 2010, nearly 15 percent of China's total fresh water withdrawals that year, says the Bloomberg New Energy Finance report.
While northern China has 60 percent of the country's thermal power, it contains only 20 percent of its fresh water supply.
The report cites China's top five state-owned utilities -- China Huaneng Group, China Datang Corp., China Huadian Corp., China Guodian Corp. and China Power Investment Corp. -- which together have hundreds of gigawatts of coal-fired power plants in the arid northern region.
If the five companies continue with development of coal-fired power plants, those water withdrawals would be 25 percent beyond the government's 2030 target of capping national water withdrawals at 700 billion cubic meters per year, the report says.
But retrofitting the plants with water-efficient solutions could cost billions of dollars, Bloomberg says.
"Thermal plants will have to use more efficient technologies -- but doing so will drive up both capital and operating expenditure," Alasdair Wilson co-author of the report, said in a statement.
Separate research by the China Environmental Forum, an initiative of the Woodrow Wilson International Center for Scholars' global sustainability and resilience program shows that China's total water reserves dropped 13 percent from 2000-09, with the water shortage being particularly severe in the north.
China, the world's biggest coal consumer, generates about 70 percent of its electricity from coal power and that is expected to double by 2020, the forum says.
"The era of water abundance in China is over and competition for resource access between business, agriculture, and urban centers is starting to bite," said Maxime Serrano Bardisa, one of the report's authors, who is a Bloomberg New Energy Finance's water analyst.
Yet China's water scarcity likely could help to boost the country's renewable energy producers and its beleaguered solar sector, Nathaniel Bullard, a Bloomberg New Energy Finance analyst in Hong Kong, told Quartz.
Solar and wind farms consume minimal water, so the government could choose to replace some coal-fired power stations in water-scarce regions with renewable energy.
However the Bloomberg reports notes that solar and wind requires a high investment because the technologies are intermittent, so more capacity would have to be built.