The start-up of new reactors in China is the dominant reason behind the improved growth of world nuclear generating capacity in 2015. The country’s programme has slowed down markedly from the pre-Fukushima era, as described in a previous article (March 2015, ‘China’s nuclear programme – how serious are the delays?’). Nevertheless, there are other important elements of the rapid Chinese nuclear expansion that are worth exploring in depth.
China now has 33 units in operation, with a combined generating capacity of 29.6GW.
Alongside these operating units are 21 units in China that are fully under construction. But even if they are all online by the end of 2020, aggregate Chinese nuclear generating capacity will only be 52GW, substantially below the country’s often-stated target of 58GW. After Fukushima there was a slowdown of approvals of reactor construction starts which has had a substantial impact.
Although that rate has ticked up again, achieving even 52GW looks quite challenging, and for a number of reasons. Firstly, if all the 21 units are to be online by the end of 2020, several of them will have to meet construction periods of only five years. That would be better than the recent experience in China, although it may be claimed that in recent times construction periods were adversely affected by the post-Fukushima construction slowdown which is now over. It may also be noted that other countries – notably Japan with its last ABWR units – have achieved construction times of less than five years and there seems little reason why China cannot eventually do the same.
Against this, it should be noted China is now building a number of new reactor types which have not yet been commissioned anywhere in the world. If all the units under construction were latest edition CPR1000s, it would be reasonable to be more confident about construction periods because many of these reactor units have already been brought into service. As it is, the units under construction include Westinghouse AP1000s, Areva EPRs, locally designed Hualong units, plus a single innovative high temperature gas-cooled reactor (dubbed HTR-PM).
The AP1000s and EPRs have all been under construction for a minimum of six years already, but all have encountered various delays, owing largely to technical issues. It is believed that all will enter service in the period 2017-18, so even in the event of further delays they ought to make it before the end of 2020.
More doubt has to be expressed about the Hualong units and the HTR-PM. The Hualong unit has been developed by CNNC and CGN, who have been pooling their efforts to produce a standardised Chinese reactor that can compete for orders both at home and in international export markets. But at present, each is building its own version (CNNC at the Fuqing site and CGN at Fangshenggang). As these are the first of a new reactor variant, it will certainly be challenging to get them into operation by the end of 2020. There are obviously major uncertainties about the timing of the commissioning of the HTGR, given that it is a very different design to the PWRs.
When looking beyond 2020, it is important to step back and consider some of the important issues that lie behind the Chinese programme. Forecasts that China can achieve 150-200GW of nuclear capacity by 2030 are now wide of the mark. Perhaps 120-130GW would be more realistic, but even that is challenging.
It is often claimed the major motivations behind China’s ambitious nuclear power programme are the need to reduce air pollution and deal with climate change. This is a fundamental misunderstanding of the situation. It is certainly true that China has pledged to obtain around 15% of its primary energy from non-fossil sources by 2020, and 20% by 2030. In order to meet these goals, China is attempting to switch power generation towards nuclear, renewable sources (including hydro), and even natural gas, all of which should replace coal. Nuclear power has a role to play in this, as is often stated by Chinese officials and nuclear experts. However, the low-carbon agenda is certainly not the main driver of the development of a strong nuclear programme.
In reality the nuclear programme has much more to do with China’s industrial development plans. Government planners have identified nuclear power as a technologically advanced sector where China can rapidly develop its indigenous supply capacity and eventually become an important player in the world market. The Chinese have noted the relative weakness of the nuclear sector today in many countries that have previously been identified as world leaders, and China believes
it can take those leaders’ place. The foundation for this will be a large domestic reactor building programme which will create the required level of technical knowledge, operating experience and supply chain development to become a major player outside China too. Hence the interest the major Chinese nuclear companies are showing in investing in nuclear projects in many other countries around the world.
Nuclear power has also been identified as an element in the “One Belt, One Road” strategy, whereby China is seeking to be a significant participant in the industrial development of the countries lying between China and Europe.
It can be argued China’s nuclear export plans are rather over- ambitious, but the thinking behind them is obvious. China does not expect its future to be that of a “workshop of the world” manufacturing masses of low-value-added products. In any case this role is already shifting to other developing countries – for example India, Myanmar and the Philippines. Instead, China wants to compete with Europe, North America, Japan and Korea in advanced technology areas.
In nuclear, a close parallel is Russia. The Chinese have noticed how the Russians have cemented themselves a prominent position in the nuclear sector with lots of overseas projects. China believes it can begin to compete with Russia now. Although it is starting rather later, it has some advantages in the experience of building reactors on time and budget and also in the provision of project finance.
Another important element prompting nuclear expansion in China is the local dimension.
Although public opinion has soured towards nuclear in some parts in the post-Fukushima era, much of the push for more reactors has come from the provinces, which have noted the degree of economic development that now surrounds the existing nuclear power bases at Daya Bay and Qinshan. Jobs are as important an element in economic planning in China as in other countries, and – certainly up to the time of Fukushima – it was the provinces that were pushing Beijing to approve more of their projects.
In this they were partnered by the big state-owned enterprises, not only nuclear specialists CNNC and CGN but also the big power companies such as CPI, Huaneng, Huadian, Datang and Guodian, all of whom wanted a share of the action on nuclear power. So nuclear in China cannot be depicted (as it is in many countries) as a “top down” technology imposed by state planners from the capital city on a reluctant local people. In fact quite the opposite has been the case.
China wants to compete with Europe, North America, Japan and Korea in advanced technology areas
An important factor now influencing nuclear growth is the overall economic situation in China. After years of growing at eight per cent to 12% per annum, growth has now slowed substantially to between six and seven percent, while electricity demand growth has fallen even faster.
At present nuclear power only represents two to three percent of China’s electricity supply, so one would perhaps think there is still plenty of room for dramatic growth. But while the average share of nuclear in world electricity is much higher at 10%, it will not be easy to move China upwards to this level, or even beyond (as some forecasters believe will happen). It is much easier to alter market shares when the overall market is growing rapidly, but this is no longer the case for the electricity market in China.
The build-up of overall Chinese generating capacity has been based on the expectation that rates of growth of power demand of 10% or more will continue. Indeed, examining the expansive plans for more coal, hydro, wind and solar power capacity today – alongside the plans for new nuclear – suggests the message that much slower overall demand growth is here and is likely to continue has not got home. Despite enforced closure of many dirty coal generating power stations there are still many new, cleaner ones coming online. What is more, new additions of wind and solar capacity also dwarf the nuclear expansion.
The impact of this is that there is now more power generation capacity than can be accepted onto the grids in some provinces. The consequence for nuclear is that it cannot be assumed new nuclear units will run at the 80-90% capacity factors that are necessary to pay back the funds invested in their construction.
It may seem strange that with only two to three percent of China’s overall capacity any of the nuclear stations will be constrained by the market. But China’s power supply and demand position has to be understood at the provincial level and there are several areas now where there is too much power supply capacity and companies are fighting to achieve take up for their plants.
So far this has particularly affected CGN’s Hongyanghe plant in the northeastern Liaoning province. There are now four reactors in operation at this site, but one unit spent an extensive period offline last winter due to slower power demand growth and the availability of plenty of coal and wind power capacity nearby. The three units that were in use only operated for an average of 987 hours in the first quarter of 2016, which represents just 45% of the potential 2190 hours in the period.
The other province where nuclear may be affected by power demand issues is Fujian, in the south east of the country, where there are two plants – Fuqing, operated by CNNC and Ningde, operated by CGN – which will each eventually have six 1000MW units. The rapid build-up of nuclear in the area may mean those reactors may not be able to run at high capacity factors.
To some extent this problem may be solved, over time, by construction of better interprovincial grid connections in China. In practice, the solar and wind power producers have been hit even more severely by over-supply in some markets and measures are underway to help solve this.
At the same time the Chinese government would clearly like to shutdown older coal-generating plants more quickly. However, this is difficult where unemployment is a big issue and jobs will disappear. The overall message is that nuclear has to compete against other generation options in China and investors are clearly concerned by the provincial positions. Some of the ambitions of the three big operators (CNNC, CGN and SPI) may be thwarted because of these issues.
A related issue is the tariff that producers receive when they sell power to the grid. There is a standard tariff, fixed for nuclear power, of 0.43 RMB per kWh (approximately US$0.07 per kWh) but this can be varied according to the local situation. As the government is gradually introducing more competition in the Chinese power market, there are now concerns that tariffs will be cut where there is surplus power. In addition nuclear operators are expecting
to receive some compensation in the power tariff for the higher construction costs of the initial Gen III reactors, such as the EPR and the AP1000. A level of 0.50 RMB per kWh has been mentioned, but this is under threat if there is plenty of available generation capacity in the local areas.
A nuclear power plant has only one source of revenue, dependent on two things: the capacity factor achieved by the plant; and the export tariff. It was previously assumed that China could build nuclear units without the economic concerns that exist elsewhere in the world. That is no longer true. Both CGN and CNNC have floated their generation subsidiaries on stock markets (Hong Kong and Shanghai, respectively) and are therefore under a much greater degree of scrutiny by analysts and investors. The additional costs of building the latest Gen III units are also an important issue.
It can be concluded the key issues, which affect nuclear elsewhere in the world, are also crucial in China. Nuclear plants need strong government support. What is more, even with that support they must be able to make money in electricity markets that are no longer growing rapidly and where there is substantial competition from alternative modes of generation.
*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.