Combine water and milk in a 3-quart saucepan; bring to boil. Slowly whisk in grits. Cover and reduce heat to medium-low. Cook for 5 to 7 minutes or until slightly thickened, whisking occasionally. Remove from heat; stir in Cheddar cheese and set aside.

Meanwhile, peel shrimp; remove tails. Pat dry with paper towels. Heat olive oil in a deep, 12-in. nonstick skillet. Add shrimp; cook over medium-high heat for 3 to 4 minutes or until shrimp reach 145°, turning often. Transfer shrimp to a plate and set aside.

Add sausage, mushrooms, onions, red peppers, jalapeño peppers, and garlic to same skillet. Cook over medium-high heat for 3 to 4 minutes or until softened, stirring occasionally.

Remove skillet from heat. Add beer, bone broth, lemon zest and juice, and smoked paprika. Return to heat; bring to a boil. Reduce heat to medium. Simmer, uncovered, for 6 to 8 minutes or until reduced by one-third. Stir in shrimp.

Ladle grits into individual bowls and top with shrimp mixture, garnish with chives. Season with additional salt and pepper to taste.