Energy & Resources

Atomic ambitions

Latest merger signals Chinese aim for global leadership in nuclear power


China will add 25GW of nuclear power capacity over the next three years

The Americans have Los Alamos in New Mexico and China has Plant 221 in Qinghai province. The two locations were the birthplaces of atomic bomb programmes. Today they are both open to tourists, with one major difference. Foreign nationals can’t visit the museum at Plant 221, which explains how Mao Zedong developed nuclear weapons to ward off American and Russian aggressors.

The Chinese government has shown far fewer qualms about encouraging foreign investment in the country’s nuclear power industry. All of its existing nuclear plants have been built with varying degrees of foreign technology from the world’s three leading powers in nuclear energy: the US, France and Japan.

As of last September, the three countries accounted for 25.4%, 16.1% and 10.2% of global installed capacity respectively. China came fourth on 8.6%, with 33.7 gigawatts. But its capacity growth is outstripping the rest. By 2020, it wants 58GW of nuclear generating capacity, although it will probably fall short of the target because of problems transitioning from second generation to third generation technologies, which are theoretically 100 times safer.

Third generation standards offer improvements in fuel technology and thermal efficiency. But the difficulties in transitioning to the new era in China have been exacerbated by changes of approach in other countries, which are either slowing or reversing their nuclear plans thanks to the enduring fallout from Japan’s Fukushima disaster in 2011.

The same spirit of policy reversal is one of the main reasons why France’s Areva and US-based Westinghouse (most recently owned by Toshiba) have been struggling. At the end of last year, Areva was rebranded as Orano after suffering years of losses, and the French government handed its reactor business, or more specifically its G3 EPR (European Pressurised Reactor) technology, to state electricity giant Electricite de France (EDF).

Westinghouse, which developed the competing AP 1000 technology, is currently in Chapter 11.

China, on the other hand, is steaming ahead with a sector-wide upgrade after exploiting foreign tech transfers to develop hybrid 3G formats such as CAP1400 and one completely homegrown approach known as Hualong One (ACP 1000).

The National Energy Administration (NEA) released a plan this week calling for five new reactors to be brought online this year and construction to start on a further six to eight units.

The Chinese have also begun exporting their know-how, building plants in Pakistan, Argentina and Brazil. One of the few remaining global competitors is South Korea through Korea Electric Power Corp (Kepco) and Korea Hydro and Nuclear Power (KHNP). Kepco has used its own APR1400 technology to build four 3G reactors in the United Arab Emirates and it is also the preferred bidder for the Moorside project in Cumbria in the UK – quite possibly so that the British government can reduce its reliance on China’s CGN Power, which is involved in the other three new nuclear projects in Britain.

These include: the $23 billion Hinkley Point C project (using EPR technology), which is being part-funded by CGN (with a 33% stake); the $18 billion Sizewell C project, also using EPR technology and in which CGN has a 20% stake; and Bradwell B, where the government is considering using China’s Hualong One technology (and where CGN has a two-thirds stake).

The South Koreans may find it harder to compete against the Chinese for offshore contracts following a policy reversal of their own. Nuclear power accounts for a third of South Korea’s energy mix. But since he was elected last year, President Moon Jae-in has pledged to phase nuclear energy out on safety grounds; a move that is unlikely to inspire other countries considering it as a low-carbon alternative to coal.

In terms of commercialising 3G, South Korea is ahead of the pack with its Shin Kori plant, although China is hoping to follow suit with its Sanmen and Taishin projects, which are being developed by China National Nuclear Corp (CNNC) and CGN respectively.

Both have been subject to lengthy delays. Sanmen was commissioned in 2009, but fuel loading was halted pending further ‘hot testing’. The China Daily reported last month that the plant was supposed to go into operation in 2014 but that there were delays due to “safety concerns”. The Zhejiang province-based plant is using Westinghouse-designed AP1000 technology, which uses overhead water tanks to cool the fuel rods.

Taishan 1 and 2 were China’s first 3G plants to commission EPR-based technology using pressurised water. They deploy containment domes to capture the core in the event of a meltdown. This project was also delayed after Areva discovered faults at its Flamanville plant in France. However, the Chinese media is reporting that Taishan 1 has finished the hot tests of its commissioning phase and will soon be the first EPR plant to go into operation.

Progress at Taishan is likely to prove critical to CGN and CNNC’s short-term share prices. Both producers have been on a downward slide. Investors have been concerned about delays in proving the 3G format and wondering whether the government will compensate the power firms for the higher costs involved (50% more than second generation technology, it has been reported).

There is also a question mark over prospective utilisation rates at a time when the economy is tilting more towards services, and away from heavy industry. The ratio of energy demand growth to GDP, for example, has fallen from 1.3 times in 2011 to 0.72 times last year.

CGN is currently trading at around 10 times forecast earnings for 2018 compared to 30 times at its height. In early February, its stock price hit an all-time low of HK$2, less than half its peak in mid-2015. It has since ticked up to the HK$2.17 level. Shares at CNNC have also shown signs of bottoming out, having halved from a high of Rmb13.95 shortly after listing. The company’s shares are now trading at around 21 times forecast 2018 earnings on a valuation that has picked up in part because of the government decision to give it control of China Nuclear Energy and Construction (CNEC).

Analysts have applauded the merger for balancing out China’s two main nuclear competitors. As of June 2017, CGN had 20 operational plants accounting for 21.47GW of capacity, while CNNC had 16 with 13.23GW.

Investors are also watching developments at CNNC’s Fuqing 5 and 6 plants, which are the first to implement the homegrown Hualong One technology. The press has reported that the containment dome was installed in May 2017 and the plant has plans to become operational next year or 2020.

In fact China is becoming a test bed for 4G nuclear power too. Plentiful funding and strong government support make for a winning combination in the sector. In an ironic twist, US companies are working with some of China’s top scientific institutes on the technologies.

Last November, Bill Gates’ nuclear reactor design company, TerraPower, signed a joint venture agreement with CNNC to pioneer a travelling wave reactor that simplifies the traditional fuel cycle and uses uranium 30 times more efficiently. Likewise, Oakridge Laboratories has dusted down 40-years worth of R&D on thorium salts and is working with the Shanghai Institute of Applied Physics to produce less dangerous forms of uranium. Other initiatives include sodium-cooled fast reactors (being developed by China’s Institute of Atomic Energy) and high-temperature, gas-cooled reactors (pioneered by CNEC).

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