China’s evolving nuclear landscape26 August 2015
China’s nuclear programme has previously been dominated by two huge state-owned enterprises, but that is changing. By Steve Kidd
The existing major enterprises were China National Nuclear Corporation (CNNC) and China General Nuclear Power Corporation (CGN). CNNC is the descendent of the old Ministry of Nuclear Power and includes nearly all China's nuclear fuel cycle activities, some supply chain and engineering companies and several operating nuclear power stations. CGN is essentially an operator of nuclear power stations (bigger than CNNC in this regard) but has aspirations to get more involved in the fuel cycle.
The relationship between CNNC and CGN is a complex one but it is apparent that there have been tensions. CGN is rooted in powerful Guangdong province in the south, while CNNC in Beijing is close to key decision-makers such as the State Council (the Chinese cabinet) and its National Development and Reform Commission (NDRC). There has been talk about merging the two, but there are obvious practical difficulties in this, including the nature of regional power in China and strong cultural differences between two enterprises.
The industry's structure has been changed by a merger between two other large state-owned enterprises and by both CNNC and CGN floating subsidiaries on stock exchanges.
State Nuclear Power Technology Corporation (SNPTC) and China Power Investment Corporation (CPIC) merged to form State Power Investment Group (SPIG). That brought together a major reactor technology company with a huge power plant operator. The combined group will be larger in asset value than either CNNC or CGN.
SNPTC is the technology transfer company for the Westinghouse AP1000 reactor and is developing its own larger CAP1400 model. CPIC was created when the old State Power Corporation (SPC) was spilt in 2002 into five generation companies and two grid operators. CPIC was the beneficiary of minority stakes held by the Chinese state in various nuclear stations, but is the third company in China authorised to operate nuclear stations (which it will do when the second AP1000 project, Haiyang, comes into operation). There are therefore now three big state-owned enterprises in China devoted to nuclear.
The Initial Public Offerings of shares in CGN's power subsidiary on the Hong Kong Stock Exchange in December 2014, and the equivalent offering of a CNNC subsidiary on the Shanghai Stock Exchange in June 2015 demonstrate that the Chinese industry welcomes an injection of private capital and is also ready to accept the greater public scrutiny a market listing involves. CGN and CNNC will retain the majority ownership of these subsidiaries, but over time they could tap the market for more funds and will naturally become less state-dominated. It is almost certain that SPIG will also carry out an IPO within the next few years, once its new structure has settled down and it establishes a financial record.
The other four power companies spilt off from SPC - Datang, Huaneng, Huadian and Guodian - also have nuclear ambitions and, like CPIC, have acquired minority stakes in nuclear plants around China developed by CNNC and CGN. They are not, however, currently authorised by the Chinese state to operate nuclear stations and it is unclear if and when this will be granted. Certainly they are pushing for it, and Huaneng has a big stake in the Shidaowan project to build the first CAP1400 reactors with SNPTC. But following its merger with SNPTC, CPIC may become the operator and Huaneng remain frustrated. It is not unrealistic to expect all the "other four" to become operators eventually, although this may be delayed by the State Council. The Council may not want to have too many operators before the regulator, the National Nuclear Safety Administration (NNSA) can readily cope with them.
China's major supply chain companies, such as Shanghai Electric and Dongfang Electric, and its nuclear construction companies are also expanding. The big suppliers have invested heavily in localising the supply chain and although the nuclear share of their business is less than 10% it is growing rapidly and is very profitable. Both are state owned but there are more specialised companies in the nuclear supply chain that are much smaller and less state-dominated. The major construction companies are also state owned; China Nuclear Engineering & Construction Corporation (CNEC), which was split off from CNNC in 1998, is the most significant.
In nuclear fuel supply, CNNC dominates but CGN has acquired overseas uranium supply interests (notably the huge Husab uranium mine in Namibia, which will commence production in 2016) and developed links with Kazakhstan in uranium supply and fuel fabrication (see China and Kazakhstan agree to nuclear cooperation). There has been talk of a major fuel supply facility in Guangdong, to be jointly owned by CNNC and CGN, but this remains at the planning stage and may not happen. The future of the fuel cycle in China will likely remain largely with CNNC for now but CGN will seek a bigger role. Assuming there is no CNNC-CGN merger, this will naturally happen over time.
Ultimately the structure of the Chinese industry is a subject for the State Council. The seven potential operators have shown their readiness to take in private capital (the other four power companies have floated renewable energy companies on the Hong Kong market). Such are the strong regional power bases in China that having just one nuclear company (like Rosatom in Russia) is unlikely. China is likely to be more like the USA but with rather fewer operating companies.
About the author
Steve Kidd is an independent nuclear consultant and economist with East Cliff Consulting. The first half of his career was spent as an industrial economist within British industry, followed by nearly 18 years in senior positions at the World Nuclear Association and its predecessor organisation, the Uranium Institute.