China – a nuclear powerhouse?22 August 2018
Will China tower over the world’s nuclear power industry through 2050 in the way that advanced Western countries dominated it during the last half-century? Conventional wisdom might suggest that it will, but that answer could turn out to be wrong, as Mark Hibbs explains.
WHILE THE WEST’S NUCLEAR POWER sector during the last fifteen years has stagnated, China invested massively in nuclear power technology without any sign of looking back. In 2000, China operated three nuclear power plants. Today, China has more than 40 reactors online, and only the USA and France have more. China is spending money on advanced reactor systems and know-how centres, and is setting up a national export platform to provide future clients with nuclear power plants, nuclear fuel and fuel cycle services, as well as licensing, engineering and maintenance expertise.
Elsewhere established nuclear power plant vendors are shackled by lack of routine business; this has translated into loss of knowhow, and supply-chain management challenges. China, if media reports are to be believed, continues to go from strength to strength, and will remain on course by adding more nuclear capacity in the years ahead. What is more, Chinese industry is doing all this at low expense: according to the OECD Nuclear Energy Agency, China is building nuclear power plants at an overnight cost of about $3500 per installed kilowatt, 20-30% cheaper than Western countries.
So, does this imply that China’s nuclear development will remain firmly on autopilot along the same steady trajectory as during last 15 years? It does not.
There are two main reasons why. First, China for strategic reasons wants to significantly shift the technology focus of its nuclear programme. And second, China’s nuclear development may face constraints that until now have not factored in Chinese decision making.
China’s strategic viewpoint
A commonly held view in some Western nuclear countries is that nuclear power technology will in coming years be superseded by other means of generating electricity, perhaps technologies that have not yet even been invented. This view has been reinforced by the growing threat to operating reactors — some may be shut down because they are too expensive — and by cost overruns for new nuclear power projects.
In contrast, Chinese decision makers embrace the perspective that nuclear technology is a strategic technology that China may have to rely on for hundreds of years. Accordingly, at the outset of the 2000s China set forth a goal to transition from light water reactors to advanced systems led by fast neutron reactors by mid-century.
Since the 1980s, most Chinese investment in nuclear power infrastructure has been in replicating the prior achievements of its foreign partners (principally France, the USA, Russia, and Canada). China sought technologies that were demonstrated elsewhere, and it acquired intellectual property for these.
Investment in advanced technologies has, by comparison, been modest. In 1986 China officially designated the fast reactor a “strategic” technology, beginning with the 20MWe China Experimental Fast Reactor (CEFR) that began operating in 2011. China partnered with Russia, the country with the most robust commitment to fast reactor development. China’s next step in that collaboration is a 600MWe unit, the CFR-600; it broke ground in January and is scheduled to be finished in 2025.
The CFR-600 must be flanked by Chinese investment in an advanced nuclear fuel cycle, led off by a spent fuel reprocessing plant at Jinta that is meant to provide plutonium, and including know-how and infrastructure for production of fast reactor fuel. All this, according to China’s plan, should be in place before the late 2020s. In parallel, it is spending money to develop other non-conventional nuclear fission technologies — molten salt reactors, high-temperature gas-cooled reactors, advanced LWRs, pyro-chemical spent fuel processing, metallic fast reactor fuels, and partitioning and transmutation of actinides and lighter fission products to permit fast reactors to burn nuclear waste. All in all, this is a very ambitious enterprise.
In committing to do this, China will be reaching far beyond its initial ambition to match the achievements of established nuclear power countries. China will exceed their results if it operates fast reactors under economic conditions and closes the fuel cycle at the industrial scale.
This might be possible during the 2030s, should China complete and operate the CFR-600 and the reprocessing plant, initiate follow-on projects, and continue making fuel cycle technology progress. Compared to its successful replication of light-water technology, however, to make this happen China faces severe challenges in several areas.
China will have to invest heavily for a considerable time to shift the technology basis of its nuclear power programme. It has little experience in some fields, and some technologies are at an early stage of development.
According to one Chinese expert, right now China is spending a half-billion US dollars over the next few years on a single project to develop advanced fuels. To be successful, China will have to allocate large sums for myriad projects for two decades or more, and then down-select technologies. Above all, in a domestic policy environment that may in the future become less favourable to top-down decision making, China must find a way to ensure that funding for favoured projects and technologies will be sheltered from political and economic challenges. It may find that replicating the technology of others is easier than commercialisation in technologies where risks and costs are less well known.
Between the 1950s and the 1990s, technical difficulties meant governments terminated or retarded fast reactor programmes. Engineering, operating error, manufacturing and materials issues led to problems and accidents that reduced availability and reduced confidence that fast reactor systems would soon be ready to be safely and economically deployed at industrial scale.
In the last twenty years, fast reactor R&D has continued and progress has been made in critical areas, but the project risk associated with fast reactors remains greater than for systems based on light-water technology, partly because fast reactors have less operating experience.
After building a few nuclear power plants financed by foreign partners, China in 2005 dramatically accelerated its nuclear deployments, in response to a short-term power supply crisis triggered by a previous government decision to halt power plant construction projects. Its nuclear decisions followed in part from assumptions that economic and power demand would continue to expand at a high rate, that its foreign partners were correct in predicting a global “nuclear renaissance,” and that the political risk associated with severe nuclear accidents would be acceptably low. None of these assumptions today are certain.
China’s economic growth and power demand growth have begun to slow from around 10% annually, which had prevailed since modernisation began in the 1980s. This has pressured some power plant owners to cut back on production, reducing operation and revenue in some cases below the level needed to service loans that financed plant investment. Most of the pressure has been felt by thermal power plants, but in a few cases nuclear power plants have also been threatened by overcapacity.
Modernisation has driven up the debt burden in China’s real economy to beyond 200% of GDP. The government responded by imposing debt ceilings that Chinese nuclear state-owned enterprises already meet or exceed.
China’s growing focus on debt and profitability may deter these firms from investing in more advanced nuclear technologies with greater cost and project risk.
The globalisation of Chinese state-owned enterprises may foster a corporate environment (similar to utility companies in Western countries, that avoids risk and encourages pursuit of shorter-term targets) departing from the strategic aims of the Chinese state. The government’s response to greater risk and cost may be to order further consolidation of big nuclear firms along the lines of the January merger of China National Nuclear Corp. and China Nuclear Engineering and Construction Corp. Past decisions in the West to consolidate along these lines did not protect the firms and may have instead encouraged protectionism that eroded competitiveness.
The impact of the Fukushima accident in China has been profound. It responded by shelving nuclear projects at dozens of proposed sites in the hinterland - and from 2005 these sites had been expected to account for a very large share of China’s future nuclear power investment. Today, a political red line still deters construction of LWRs at any of these locations.
Indefinite discouragement of inland nuclear power plant construction will result in impacts all across the supply chain. In the aftermath of Fukushima, previous optimistic internal projections that China’s nuclear capacity might reach 400GWe by 2050, numbers that inspired plant- building investment a decade ago, have been cut in half.
Finally, China’s ambitious, expensive, and technology- driven nuclear development template compels Beijing to consider the hazard of obsolescence. Should China invest many billions of dollars on a commercial-scale advanced nuclear programme with a closed industrial fuel cycle, sometime before 2050 a watershed breakthrough may be achieved in bulk storage of electricity. If that happens, said a French government nuclear official familiar with China’s nuclear R&D aspirations, “then by 2050 all our power will come from renewables and batteries.”
Compared to most sources of electricity in China, nuclear power is expensive. Until now the state has compensated by providing direct and indirect financial assistance to the nuclear power industry, most importantly by guaranteeing nuclear power generators and investors a remunerative tariff for supplying busbar nuclear electricity to the grid.
For several years nuclear power has been officially priced at 0.43 renminbi per KWh — higher than coal-fired or hydroelectric power, in part reflecting higher capital costs for nuclear power plants. In recent years overcapacity, especially in the coal sector, has put this higher nuclear tariff under pressure and some contracts have been at lower prices. Nuclear power advocates have therefore urged the government to increase its direct support, for example by ordering that nuclear should be China’s highest baseload power dispatching priority, by raising the guaranteed power price from new nuclear plants and by levying a carbon tax. But because China’s international competitiveness has been fuelled by low costs, Beijing may want to brake nuclear generation costs, including costs of provocative subsidies.
How the central government sets tariffs in the future will be critical to the welfare of China’s nuclear power industry; decision making is opaque and involves politically influential stakeholders. China’s leadership simultaneously favours both dirigiste control and the spread of market forces. After taking power in 2013, President Xi Jinping urged that power market reform should continue, and planners following his lead want to set up a national power market based on generation cost — a development that precipitated turmoil in the West’s nuclear power sector.
A main Chinese nuclear power rationale is reducing atmospheric pollution from coal-burning. These emissions may peak during the 2030s. Best-case projections for future Chinese emission reductions include lots of nuclear power generation through mid-century.
Standing in the way of an aggressive programme to reduce coal-fired emissions (both toxic particulates and carbon dioxide) is the political clout of China’s coal sector, representing six million miners and 30,000 enterprises. In recent years, government efforts to curtail coal have had mixed results. After electricity demand growth dropped sharply during most of the 2010s, last year demand increased by about 6.5%, and so — in apparent disregard of government policies and initiatives — did coal-burning. How this conflict unfolds will depend upon closed-door bargaining over which power sources are prioritised for investment, and dispatching.
Based on China’s success in replicating light-water technology, conventional wisdom might argue that China will continue making progress in adding nuclear plants and exporting them.
China in the 2030s may have an installed nuclear capacity of over 100GWe, with most or nearly all of it represented by LWRs, and a transition to fast reactors may be underway.
David Shambaugh, a China political analyst at the Brookings Institution in the USA, is right in warning that observers should “tread carefully before hazarding predictions” concerning the future of China because the record is “littered with predictive casualties.”
China’s risk environment will continue to evolve in ways that cannot be predicted. Under Xi, the state has assumed greater authority and liability, while China’s globalisation has led to a partial corporatisation of state-owned enterprises and government agencies that instead may result in risk aversion by decision makers. Future conflict may therefore arise between nuclear companies and the government over investment, technology choices, regulation, project risk assessment and spent fuel management.
Experience from Western countries strongly suggests that for China to succeed in transitioning to fast reactors and a closed nuclear fuel cycle, its blueprint must be endorsed by Chinese industry. During the 2020s, however, China will be beset by the need to balance the interests of continued electricity reform against Beijing’s strategic interest in favouring both more-expensive nuclear and renewables over fossil fuels.
In the case that China abandons or defers its sought-for transition to fast reactors, and remains focused on LWRs, potential challenges loom nonetheless. Outcomes favorable to nuclear may depend upon Beijing indefinitely subsidising nuclear power development and restricting the incursion of market forces into its electricity sector.
Perhaps the biggest uncertainty regarding the future of China’s nuclear programme is the shape of China’s future electricity demand curve. If demand growth falls to the near-zero level of many OECD countries, the rationale for expanded nuclear development will rest instead on the government’s untested resolve to swap nuclear capacity for coal-fired capacity. But if demand grows annually over the next two decades at 5% — half the historical rate since the onset of modernisation in the 1980s — then China’s demand for electricity by 2040 will double, and nuclear power capacity might expand accordingly to take up the slack.
Other challenges may appear. Should nuclear investment in China’s hinterland remain restricted, should global export markets not materialise, should planners establish a national power market where decisions on dispatching and investment are based on factors that discourage nuclear power, and should prevailing political restrictions on long-distance transport of bulk electricity be lifted, permitting China’s grid company to wheel bulk power from mine-mouth generating stations countrywide, China’s nuclear power industry in the future might be existentially challenged in ways that would look familiar to Western governments and nuclear industry firms today.
Author information: Mark Hibbs, Senior fellow in Carnegie’s Nuclear Policy Programme