As a rule, people are not overly enthused about having a nuclear power plant in their backyards, but Shenzhen resident Mr Tang is unequivocally positive. "Of course I’m happy it’s here," he said of the Daya Bay Nuclear Power Station, situated about 45 kilometers west of Shenzhen’s city center. "Building a plant here has had many benefits, for both the country and for individuals."
The first of two reactors at Daya Bay officially came online on August 31, 1993. Designed and built by France’s Framatome (now Areva, PA.CEI), the plant – China’s second – was to provide power for the surrounding region. For the past 17 years, it has done so cleanly and reliably, and has supplied more than just electric power. For citizens like Tang, who works in security at the plant, it has also been a source of economic livelihood.
"It’s been a big help to our region," Tang said. "For example, if we need anything or don’t have enough money for a project, they can provide help, and loans of several million renminbi."
Despite the success of nuclear power stations like Daya Bay and a huge appetite for reliable electricity, development of nuclear power in China has been slow. Access to cheap raw materials has allowed coal-fired power plants to maintain their hold over power production, while a global aversion to developing nuclear power following accidents 1970s and 1980s has kept it from being widely accepted as an answer to China’s energy needs.
That is now changing. Beijing’s current plans would take China’s nuclear capacity from less than 9 gigawatts (GW) today to at least 40 GW by 2020; some experts expect the country to reach 70 GW by 2020. That would put nuclear’s contribution well above the 20 GW target in 2020 for solar power, although it would come in below the 100 GW target for wind power by the same year.
By 2050, though, China is expected to have 400 GW of nuclear capacity, accounting for 22% of total power output.
"They have very ambitious plans," said Yury Sokolov, deputy director general of the International Atomic Energy Agency (IAEA) and head of the agency’s department of nuclear energy.
But Sokolov cautions that realizing these plans will not be easy, owing to China’s relative lack of experience in nuclear power. "They have to [develop] human resources and industrial support for such large amounts of new construction … This is a very big challenge for China."
It will also be a huge opportunity for domestic and foreign companies involved in the development and operation of nuclear plants. For foreign firms, especially, it represents a rare chance to participate in China’s energy sector. The crux is that China doesn’t simply want to increase nuclear power capacity; it wants to develop an entire nuclear industry more or less from scratch. While difficult, this is a strategy that has worked before – and this time, China has the advantage of learning from countries with nuclear experience.
"The French developed nuclear power because of the oil crisis in the 1970s," said Arnaud Lefevre-Baril, managing director in Beijing of Dynabond Powertech, a nuclear industry consultancy. "The government chose to supply nuclear power only to become independent. China is doing exactly the same."
The early fruits of that effort were visible in late December as a containment vessel bottom head – the foundation of the structure that holds the nuclear reactor – was installed at a plant under construction in Sanmen, Zhejiang province.
The 1.1 GW AP1000 reactor planned for Sanmen, built by US nuclear giant Westinghouse, is a "generation III+" design, a term applied to advanced reactors featuring the latest improvements in safety and efficiency. The deal between Westinghouse and the State Nuclear Power Technology Corp (SNPTC) that will see Sanmen house the world’s first AP1000 also involves extensive technology transfer to China; the reactor will eventually be localized to permit Chinese firms to produce versions independently.
Just a few weeks after the installation at Sanmen, the first concrete was poured at the construction site of a nuclear plant in Ningde, Fujian. Ningde will feature a 1 GW CPR-1000 reactor, a less advanced generation II+ design borrowed from France, and still owned by Areva.
The AP1000 and the CPR-1000 are pressurized water reactors (PWRs), the most common reactor type, which use water under high pressures as a coolant. Beijing chose a specific type for use nationwide to facilitate the rapid expansion of nuclear capacity across the country and also to make it easier to sell future indigenous designs overseas. Utilities in more developed markets tend to choose reactors based on their individual needs.
The decision was not without its detractors. Though they have close ties, China’s three state-owned nuclear holding companies, China National Nuclear Corp (CNNC), SNPTC and China Guangdong Nuclear Power Corp (CGNPC), operate independently in practice and have in the past deployed a range of different reactor designs.
"CNNC as the core state-owned enterprise (SOE) has always had its main priority of developing a completely indigenous design," said Daniel Money, a Shanghai-based project manager at the Nicobar Group, which advises foreign nuclear power component manufacturers in China. "When the Chinese government … made the decision to select third-generation nuclear technology, import it, localize it and mass-deploy it, CNNC actually fought that decision very hard."
While the decision was a coup for some foreign firms – notably Westinghouse – it was hard on others. Suddenly, General Electric (GE.NYSE), which focuses on boiling water reactors (BWRs), and Atomic Energy of Canada Limited (AECL), whose CANDU design uses heavy water to cool the reactor and make fission possible, were out of the loop.
"It has been a concern in the past that China was very committed to their so-called one-reactor policy," said Jerry Hopwood, vice president of product development at AECL. Two CANDU reactors at Qinshan in Zhejiang have been among the best-performing nuclear power stations in China.
But a nuclear plant is not simply the product of one company; beyond the plant design, engineering, procurement and construction of plant components involves a wide range of different firms. As Shenzhen resident Tang noted, a strong nuclear industry brings economic benefits, and not just because of the power stations themselves.
To take one regional example, South Korea, a relative newcomer to the global nuclear power stage, developed its first indigenous reactor design in 2005. An IAEA study showed that 2.1% of Korea’s GDP in 2005 could be linked to the contribution of the nuclear power sector; the country’s semiconductor and auto industries, in comparison, contributed 1.5% and 2.5% to GDP, respectively.
"In principle, nuclear technology increases the industrial capability of countries," said Sokolov at the IAEA.
China naturally hopes that the same will be true here, with domestic companies the principal beneficiaries. This may be particularly true for the AP1000, the modular design of which allows even large components to be fabricated off-site before installation. To this end, the State Council backed the industry last year when it approved the establishment of the US$1.46 billion China Nuclear Power and New Energy Industry Investment Fund by CGNPC.
However, while observers say that domestic firms will succeed in the long term, prospects in the short-to-medium term are far from certain. According to Lefevre-Baril at Dynabond, areas like special forging and welding for nuclear plants remain relatively weak in China; efforts by Shanghai Electric (601727.SH) and China First Heavy Industries (601106.SH) have so far not produced the quality of imports from the likes of Japan Steel Works (5631.T), a world leader in heavy forging. Last September, Japan Steel Works more than doubled its forecast for construction of nuclear plants in China.
A serious problem faces suppliers: China currently has no national safety standard for components used in the "nuclear island" – the part of the power plant that houses the reactor, separate from the "conventional island" that contains non-nuclear components like turbines and generators. In practice, suppliers and buyers have agreed on safety standards such as ASME, used in the US, and France’s RCC-M, but the lack of an official standard is still a brake on the industry.
"This is a problem when you want to sell equipment, or when you have local companies which are trying to sell their safety-rated equipment," said Lefevre-Baril. "All the foreigners are pushing China to have their own standards so they will be able to comply and sell equipment according to the Chinese standard."
Uncertainty also extends into the legal sphere. A long-discussed Atomic Energy Law clarifying such issues as legal liability in the case of nuclear accidents is yet to be released. While official responses have effectively outlined Beijing’s position, they have been issued on an ad-hoc basis.
"My opinion is that [Beijing was] discussing contracts with their generation III nuclear power plants, and the foreign players were very eager to have an improved framework," said Ximena Vásquez-Maignan, a senior associate at law firm Gide Loyrette Nouel in Beijing. "Because of time constraints they decided to have these responses instead of having a law."
More fundamentally, China’s nuclear industry suffers from a huge human resources deficit. This is not a unique situation – the halting of nuclear development worldwide in the 1980s and 1990s created a nuclear talent generation gap – but industry insiders say the problem is more pronounced here, extending to a shortage of inspectors in China’s National Nuclear Safety Association. Added to that are concerns about management and quality control at domestic firms and bodies involved in nuclear development, aggravated by the pressure to boost capacity.
"It’s a clusterfuck," said a source involved in the development of a new power plant, citing problems with quality control and the management of nuclear projects.
The confusion highlights another business opportunity for foreign firms: Nicobar’s Money said there is a market for utilities in the US and France with decades of nuclear experience to sell their best practices to Chinese players. While not removing the need for better technology, the impact of optimizing power plant operation – such as limiting each plant’s downtime during refuelling – is significant.
"There are obviously a lot of other things on the government’s plate, and shaving hours off of the outage time isn’t exactly the number-one priority," said Money. "But eventually, maturation, and increasing the efficiency of an operating nuclear fleet will be [important]."
As they develop their expertise, China’s nuclear operators will also continue to refine their reactor designs with a view to fulfilling Beijing’s long-held ambition of selling nuclear power technology overseas as well as at home. Separate from the technology transfers that come with the AP1000 deal, Westinghouse is already working with SNTPC, CNNC and the Shanghai Nuclear Engineering Research and Design Institute (SNERDI) on an indigenous 1.4 GW CAP1400 reactor based on the AP1000. The CAP1400, to which China will hold all intellectual property rights, is then expected to form the basis for a 1.7 GW CAP1700 reactor. These kinds of advanced designs could help China to follow in the footsteps of South Korea, which late last year beat off competition from US-Japanese and French consortia to win a US$40 billion contract for four nuclear reactors in the United Arab Emirates.
The opportunities for growth are tremendous, but Lefevre-Baril at Dynabond warns that foreign companies hoping to profit from the nuclear boom need to move fast. As China’s nuclear industry advances and expands – traditional power producers like Huaneng Power may be permitted to hold majority stakes in nuclear plants in the future – expect a repeat of the gradual erosion of foreign advantage that has characterized the development of wind and solar power.
"You have two to three years of big business," said Lefevre-Baril. "You have to really think right now about looking for your partner because after two to three years, this is going to be closed."
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