The State Government could be forced to create a strategic water reserve to keep the Upper Hunter's power stations operating if the drought worsens.
Bayswater and Liddell power stations, which supply 35 percent of the state's electricity, use millions of litres of water a day for cooling.
Water for the power stations is drawn from the Hunter River system and stored in Plashett Dam and Lake Liddell.
While the water supply to the power stations is presently stable, there are concerns the situation could rapidly deteriorate if the drought worsens in the next 18 months.
In 2016, the World Energy Council warned, "we will start to see the effects of water scarcity on energy supplies in the very near future." The effects are already starting to show, as evidenced by Kenya and India's droughts and subsequent power plant curtailments."
The Australian Energy Market Operator has also noted that power supply risks due to drought need to be closely monitored.
The state government last created a strategic water reserve to protect the power stations during the height of the Millennium Drought in 2007.
Forty billion litres of water, which had been set aside for environmental flows, was reallocated for use by the state's power stations.
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In addition to the power stations, the Upper Hunter is also home to an intensive mining industry and agriculture sector.
A spokeswoman for water minister Melinda Pavey said the Upper Hunter's water security was among the best in the state.
"Should the situation deteriorate, the availability of dam water will be progressively restricted to conserve water for priority needs, most notably high security entitlements including town supply," she said.
"In areas of the state where water security provided by major dams is under growing pressure due to drought, the importance of major economic contributors and significant employers is factored-in to drought strategy planning."
An AGL spokeswomansaid company held a series of water licences to ensure water security.
"We also own and operate a complex onsite water infrastructure system which serves ongoing generations," she said.
"These licences have remained unchanged since AGL acquired Macquarie Generation from the NSW Government in 2014. Our ability to access and use these water licences is governed by the NSW Department of Industry and Water NSW."
"Water is an invaluable resource and an essential input to ensure reliable energy supply from our assets but we do understand the critical role water has across the Hunter region, through urban, mining, viticulture and agriculture industries."
"Unfortunately, we know there is very little relief in sight for farmers across NSW, making every passing day continually challenging for regional NSW. We're committed to doing what we can to help affected communities while maintaining reliable and affordable power for NSW."
Hunter Valley Water Users Association vice president Ken Bray said he suspected power stations would receive priority for access in a worst case scenario.
If it came down to not having enough water stock and dams and town water would have priority," he said.
"I would have thought the power stations would have priority over the mines, it would be common sense."
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