So the setting of this world is an underground world (everyone was driven off the surface when demons and devils, in an unprecedented turn of events, managed to put their differences aside to drive all the humanoids underground; they have since resumed their war and the surface is constant fighting)

My character is a 7th-level abjuration wizard, but I haven't finished levelling up yet

We (party of 7- a paladin, two rangers, a cleric, a bard, an artificer, and me, the wizard) are entered into what is known as the archmage's tournament, where groups of adventurers vie for the chance to go help take back the surface. It's a series of dungeons, each providing a different challenge. The next one... is entirely underwater.

So. Damaging spells. I have cloud of daggers, but it doesn't scale too well and damage output is not the best. Also concentration. I also have fireball, but i'm uncertain if that will work well underwater. I gained one level in the rest between dungeons (I'm level 7 now), which means I can gain two spells. I need water breathing, for obvious reasons (getting enough potions for a party of 7 would be ridiculously expensive, and we just spent most of our money on expensive magic stuff), and I really want polymorph because it just seems like an incredibly useful asset.

I have a spellbook I found with all the wizard abjuration spells from 1st-5th level, so I don't need any more abjuration spells for now.

What do you think I should take?

We are using only the spells from the players' handbook, as many of our players don't have access to other sourcebooks and we don't want anyone to have an unfair advantage.

Quote from sfPanzer >>

You probably should forget about Fireball as creatures fully immersed in water have resistance to fire damage according to the underwater combat rules.

Apart from that it's pretty much the same as usual. Being underwater doesn't change anything about spellcasting, though you do want to be able to breath underwater to cast spells with V component I'd say. So unless you can already do that naturally or have a magic item that lets you breath underwater you're probably going to use one of your 3rd level slots to cast Water Breathing beforehand (if you have it prepared). Spells like Jump and Fly and spells that cover the ground like Grease and Spike Growth are probably much less interesting than on the surface as well.

 My issue is mostly just finding good damage sources. Fireball and Lightning bolt both don't work underwater (I would like to avoid electrocuting my allies if at all possible), and I need some sort of good damage source or our party is going to be absolutely curbstomped by the monsters in there.

Water breathing is a ritual though so I don't need to expend my 3rd level slots for that.

Also it lasts 24 hours and affects up to ten creatures. So we should be good there.

Quote from sfPanzer >>

There's no official rule that says lightning damage turns into AoE underwater and honestly it's not what happens irl either unless it's a incredibly strong current like a literal lightning or such. If your DM said it'll be like that then it is what it is but if they didn't mention anything in that direction it might be a good idea to talk with them about it first.

As for other damage spells, there's plenty to pick from, however what do you have access to? The Wizard spell list is a LOT larger than what most Wizards actually learn during their career. Since you're in the middle of leveling up you can pick one new spell to learn.

4th level spells offer a bunch of good options already. Vitriolic Sphere would be the big one. It's basically 4th level Fireball (slightly different) but Acid damage. Polymorph is of course great too. Other interesting spells but with costly components would be Summon Elemental (not the best but works great underwater), Summon Construct (the better defensive summon) and Summon Aberration (the overall best summon of the three but especially offensively). Phantasmal Killer is also a really strong spell. It kills slowly but reliably and as a nice bonus frightens the target.

As for 3rd level spells you have Tiny Servant, Summon Undead and Summon Shadowspawn as good alternatives. The summon spells require costly components again though.

As for 2nd level spells I guess you have Shatter and Tasha's Mind Whip. Phantasmal Force is nice too but it's basically the smaller version of Phantasmal Killer. Dragon's Breath is neat if you can cast it on someone else who doesn't have something good to do with their Action (a familiar for example though they'd become a huge target obviously). I wouldn't really bother with any of the other for damage purposes. Cloud of Daggers is okay-ish but not great.

Among the 1st level spells you'd have Tasha's Caustic Brew, Magic Missile, Chromatic Orb and Catapult. Fairly straight forward stuff.

 

That being said, don't ignore battlefield control. It's nice to have something to blast the enemies but where casters really shine is in controlling the battlefield. Hypnotic Pattern would be the big one here at this level, but also Web, Vortex Warp, Enemies Abound, Slow, Banishment, Evard's Black Tentacles, Otiluke's Resilient Sphere are all very strong options.

 I asked my DM and they said they are planning on implementing fairly realistic underwater physics, so lightning blast won't work. I do already have some pretty good control spells, although banishment would be useful to pick up. I'll probably end up going for one of the damaging ones, but I'm going to look into all the ones you mentioned. Thanks for the advice! :D

Edit: Lightning bolt not blast*

Quote from sfPanzer >>

Difficult to plan ahead if your DM is going to homebrew things to be honest.

 Yeah they've been homebrewing and combining mechanics a lot. It's pretty fun. The last dungeon was a combination of subterra and d&d which was really cool for random terrain and stuff. Unfortunately, since I am playing a wizard, you're right, it's a lot harder to plan ahead. Kinda wish I'd just gone with a druid or cleric like I usually play, but playing a wizard has been pretty fun so far and it's good to branch out.

 If the GM permits it, I'd grab Elemental Adept (Fire).  Otherwise, there aren't a lot of great choices for underwater combat spells.  Sickening Radiance and Raulothim's Psychic Lance are probably your best options.  Or try and get the GM to let you homebrew something.