In a freshly painted second-floor office at the French embassy in Beijing, a crew of engineers, safety experts and marketing executives are working the phones with bilingual charts. This is the scene inside the bustling Nuclear Affairs office. Its staff are tasked with pushing French nuclear reactors and after-sales services to China’s power authorities.
If any country is to guide China in its development of a nuclear power industry, it is likely to be France, which gets 70% of its total electricity from nuclear sources. It is the only country that has added the kind of capacity China plans for its nuclear power sector. Between 1975 and 1995 France built 60 reactors. China wants to have 30 reactors operational by 2020, compared to 11 today.
French firm Areva supplied two of China’s first reactors in the 1980s. A US$7.9 billion deal signed in November will see that duo be replaced by a pair of Areva’s third generation European pressurized reactors (EPR).
Courted by US, Russian and Canadian alternatives, China drove a “hard bargain” with Areva, said Alan McDonald, a senior analyst at the International Atomic Energy Agency (IAEA) in Vienna. This included getting the French firm to agree to a joint venture engineering company with Chinese partner China Guangdong Nuclear Power Corp (CGNPC).
China’s strategy is a smart one, said McDonald. “They’re checking out the market. They’ll build a portfolio of reactors and then specialize in one.”
He expects the country’s future reactors to be the locally designed CPR-1000, built from a mish-mash of imported technology.
In addition to Avera’s EPRs, China recently purchased four AP100 reactors from US firm Westinghouse for US$5.3 billion. French nuclear affairs officials counselled China to choose only one reactor model – preferably French.
“It’s simpler to have a single model rather than many models; you reduce risk,” said Alain Tounyol du Clos, nuclear energy attaché at the French embassy in Beijing. “In France we thought it better to standardize and thus control.”
France’s EPRs are third-generation reactors and therefore more cost effective, explained du Clos. The EPR has a capacity of 1,500 megawatts (MW) compared to Westinghouse’s 1,000 MW reactor.
“That means economies of scale and savings. If you build a 300-MW reactor you still have a lot of those costs.”
Beijing initially balked at the cost of France’s reactors – almost twice that of their US counterparts – but were sold on the French safety features.
“The [safety feature] is extremely advanced technology,” said Professor Gu Zhongmao, vice chairman of the Science and Technology Committee at the China Institute of Atomic Energy in Beijing. Elaborate safety features on Avera’s EPRs reduce the risk of an accident by a factor of 10, according to du Clos.
French safety expertise is in demand in China, he added, pointing to cooperation on research and development and an ongoing nuclear experts exchange program between Électricité de France and CGNPC. Experts share notes on safety and operational issues and it appears to be paying off. Four plants originally built by Areva rank with the best in France in annual assessments by France’s nuclear watchdog CenterEnergie Atomique.
Scope for future EPR sales may be limited, but France still has plenty of expertise to sell. French engineers are advising China on how to build its own fuel reprocessing plant. Areva will supply CGNPC with fuel for the plants for 20 years. Rather than send the fuel back to France for reprocessing or store the waste – as it currently does – China wants to recycle the waste itself. The facility, set for completion in 2025, will be “more sustainable,” du Clos said.
French firms have also been helping China’s sustainability efforts through major projects aimed at cleaning up the environment. None more so than one-stop utilities shop Veolia, which has picked up Chinese contracts in waste treatment and water supply as well as in transport.
Last year, Veolia Water’s revenues grew over 50%, driven largely by new contracts in China – six cities in the first three quarters of the year. Company chief representative Jorge Mora puts the success down to offering China a “tool kit” of tested options to manage and recycle municipal water.
There will be more work coming: China’s Ministry of Construction has put a US$42 billion price tag on the wastewater plants set for construction under China’s 11th Five-Year Plan.
Onyx, the waste management division of Veolia, burns 1,000 metric tons of waste each day at the Puxi Jiangqiao incinerator in Shanghai. An Onyx joint venture also provides technical support for the Tianjin hazardous waste treatment plant. Only 20% of China’s municipal waste is processed safely, and volumes of solid waste produced are rising 8% a year, according to the Ministry of Construction.
Veolia executives like Mora don’t like words such as incineration or burning – waste-to-energy is the preferred term. In environmentally sensitive times, the company has tried hard to captialize on a new boom in methane gas-collection projects in Chinese landfills.
Cash is flowing into methane-collection projects faster than any other alternative energy sources under the Clean Development Mechanism (CDM) system, according to a report compiled by the UN-affiliated Global Environment Facility. The mechanism is a provision of the Kyoto Protocol and allows developed countries to offset carbon emissions by funding projects in developing nations.
The Onyx-managed Xingfeng landfill site, which taps gas from Guangzhou’s waste for electricity generation, was among the first of its kind in China. The company is searching for similar projects, said a company spokesperson.
Though Veolia has not confirmed if its waste projects in China have qualified for participation in CDM, the company has registered CDM projects in several other countries, including Egypt and the Netherlands. This allows it to sell CDM credits while also earning operational fees. China only grants CDM status to sites that use gas to generate electricity, as opposed to burning it on site. Methane collection projects in coal mines are easier because the gas is purer and the mines are normally connected to the electricity grid, while landfills are often remote.
Infrastructure projects that require getting into bed with China’s municipal governments can be dangerous for foreign players. Jim Mahoney, managing director of Cleantech China, a consultancy advising foreign companies on China’s waste management market, sees a number of pitfalls.
“Underdeveloped standards, pricing pressure from rival bidders, local protectionism and unclear regulations on concession pricing are some of the challenges investors need to address in their risk assessments,” he said.
Moreover, local officials are over-obsessed with price, rather than design or quality, said a senior Veolia China official. Expertise and documentation on contracts and tariff-setting tends to be sparse at the provincial level.
“There’s no single regulator to go to if the government suddenly drops the tariff for electricity and water,” the Veolia official explained.
The firm is dealing with the problems and uncertainties – as well as attracting new business – by opening the lines of communication. Veolia recently partnered with Tsinghua and Yale universities to create a training program for Chinese environment and planning authorities.
Learning the rails
The expansion of China’s logistics network means that France has also been able to grab transportation deals. Power and rail specialist Alstom landed a contract to electrify the rail line between Shijiazhuang and Taiyuan, linking two key coal-producing provinces.
In 2004, Alstom signed a US$978 million contract with China’s Rail Ministry to deliver 60 electric multiple unit model regional trains. As a condition of the deal, 51 of the 200-kilometer-per-hour trains must be built in China, the designs copied from three complete train sets and six kits supplied by Alstom.
“There is a real energy in the Chinese government to fix the country’s logistics problems, but they’re adamant that it will be with Chinese technology,” said Thomas Callarman, professor of operations management at the China Europe International Business School in Shanghai.
Compromising with Beijing over technology transfers also landed Alstom contracts to supply trains and track equipment in Nanjing and Shanghai. This involved setting up a joint venture with Shanghai Electric Group, Nanjing CSR Puzhen Rail Transit and Shanghai Alstom Transport Electrical Equipment (SATEE).
Nanjing Metro Company ordered 21 six-car Alstom Metropolis train sets for an extension to the city’s metro system. According to the contract, Alstom will design the trains, while Puzhen is in charge of the manufacturing and warranty of the 21 train sets. SATEE will manufacture track fittings. Alstom has sold 1,400 Metropolis metro cars in China.
Company staff put Alstom’s success down to being local. Alstom cites “Be Chinese in China” as its guiding principle for doing business in the country. Company spokesman Mei Jiazhong points to the opening of the Alstom University Asia Campus in China to develop the skills of local managers.
The biggest test of Alstom’s willingness to go local may come if and when it decides to sell its new TGV bullet train in China. The company is well placed to beat competitors for the project – Japan’s Shinkansen “bullet train” and Siemens’ ICE train – after besting both trains’ speed records in a February test run. Germany has proven reluctant to transfer its high-speed train technology to China.
Copy and compete
French companies have done well selling technology to China, but in doing so, they are helping develop future competition. Technology exports are also at the whim of local policy.
“While the government remains open to foreign investment, it is more selective,” said Hubert Testard, chief of economic affairs at the French embassy in Beijing. “There is a keenness to promote Chinese solutions, particularly in high-tech [products]. Sometimes the demands for technology transfer are excessive.”
China will also ultimately be a competitor for France’s nuclear sector, having already promised to build reactors faster and cheaper than its Western counterparts. While the country’s demand for cement and steel has driven up costs in other countries, China’s low labor costs are keeping the bottom line low for its own homegrown reactor makers.
“China will export reactors,” said the IAEA’s McDonald. “Developing countries will be talking very seriously to China [about reactors].”
But du Clos is not overly concerned by this changing dynamic, noting that France itself emerged as a global nuclear player thanks to lessons learned from Westinghouse.
“China is too busy meeting its own needs,” he added. “For the next 20 years, with such a huge domestic demand, they’re not going to focus on going abroad.”