Nuclear in China – why the slowdown?

10 August 2017

China’s targets for 58GW of installed nuclear capacity and 30GW under construction by 2020 are looking difficult to achieve. Are the constraints that are so familiar in the Western world becoming a concern in Beijing? By Steve Kidd

One of the conclusions of my most recent article on China (August 2016, ‘China – what are today’s issues influencing the
reactor plans?’) was that many of the negative factors which have affected nuclear programmes elsewhere in the world are now also crucial there. The last year has confirmed that this was a reasonable judgement. Despite five new reactors starting up in 2016, to bring the number in operation to 36, with combined generating capacity of 32.6GWe, it is clear that the programme has continued to slow sharply. The most obvious sign is the lack of approvals for new construction. Although there are 21 units under construction, representing 23.1GWe, there have now been no new approvals for 18 months. Other signs of trouble are the uncertainties about the type of reactor to be utilised in the future, the position of the power market in China, the structure of the industry with its large state owned enterprises (SOEs), the degree of support from top state planners and public opposition to nuclear plans.

There are a few possible explanations for the slowdown in approvals. Delays in imported Generation III reactor designs (the Westinghouse AP1000 and Areva EPR) have no doubt concerned regulators. Problems with the AP1000 projects at Sanmen and Haiyang are more serious, as this reactor was destined for most of China’s future reactor sites. Now hot testing is complete the first Sanmen unit may go into operation before the end of 2017, but this will not bring forward a flood of new approvals. The Chinese have suffered a severe dent in their confidence about the AP1000, not helped by Westinghouse’s bankruptcy. The authorities will want to see clear evidence of successful operation before authorising more units. If they do, the first will be at the existing two sites, but there are several others that have been ready to go for several years now.

Other reasons advanced for the slowdown relate to the size of China’s programme. Over-supply has worsened in some regions and there are questions about how many reactors are needed to satisfy power demand and the electricity prices achieved. The nuclear companies clearly want to build lots of new units and feel that they are being held back by the authorities. But there remains rapid expansion of wind and solar and the Chinese hydroelectric programme is still enormous. The Fukushima accident still casts a shadow over the nuclear sector in China and regulators are clearly very cautious about having a big nuclear programme. Ultimately one person at the top of the regulatory authority has to take responsibility for safety and having 50 reactors in operation is far more burdensome than five or ten. South Korea’s turn away from nuclear and slow Japanese reactor restarts do not inspire confidence.

It is now harder to assess where China’s nuclear programme is heading. The picture up to 2020 is fairly certain: 21 units now under construction will come into operation. The 58GW capacity target by end-2020 will be missed by perhaps 5GW. China’s other stated goal is to have 30GW under construction by then. This would imply six reactors a year up to 2025, a similar level to 2015- 2020. Almost all will have to be approved before the end of 2020 – just 42 months. This looks unlikely.

It is prudent to assume a programme of 4-5 units per year beyond 2020. This means nuclear capacity of only 100GW or so by 2030, well below previous expectations.

The dent in confidence in the imported designs has been mitigated by China’s Hualong reactor, an evolutionary development of French designs of the 1970s and 1980s. This model apparently satisfies regulators’ insistence that all approved designs are at the Generation III level and four units are now under construction in China (plus one in Pakistan). The two units being built by China National Nuclear Corporation at Fuzhou (Fuqing 5&6) are on schedule to go online in 2020/21, but China General Nuclear Power Corporation’s pair at Fangshenggang are apparently well behind. There have been problems in integrating CNNC’s and CGN’s designs for the Hualong, but a single model may eventually be agreed for both domestic and export markets. Whether Hualongs will replace AP1000s at any planned sites remains to be seen.

Other questions surround the CAP1400, the larger version of the AP1000, which the Chinese have developed, and the programmes for high-temperature gas-cooled reactors (HTGRs) and small modular reactors (SMRs). Construction approval for the CAP1400s has been long-delayed and surely still awaits the regulator’s satisfaction with the AP1000. It appears that the HTGRs and SMRs will be marginal to the Chinese programme, but may offer useful additional export opportunities.

Project economics

The biggest issue today affecting the Chinese programme is its economic viability. Nuclear represents 2-3% of China’s electricity supply, so one would think that there is still plenty of room for growth. However, the slowing Chinese economy, the switch to less energy- intensive activities, and over-investment in power generation means that generation capacity outweighs grid capacity in some provinces and companies are fighting to export power from their plants. New nuclear units may not run at the 80-90% capacity factors necessary to pay back their capital cost.

Tariffs are also under threat. The central government is gradually liberalising the Chinese power sector and making it more responsive to economic conditions. This may not help nuclear. The costs of building Generation III units is rising. Reactors may have to load- follow, which is technically and economically undesirable. Investors are clearly concerned by the position in Liaoning and Fujian provinces.

Although the Chinese government says it is trying to get large state owned enterprises (SOEs) to operate in more competitive ways, political necessity can trump economics. Many dirty coal plants have closed, but there are still many new, cleaner ones coming online and new wind and solar dwarfs new nuclear. Economic and environmental logic suggests that old coal plants should be shut down faster, but this is difficult where unemployment is a big issue and jobs will disappear. 

The government is under pressure from a wide range of powerful lobby groups promoting different technologies. Wind and solar power producers have arguably been hit even more severely by over-supply of power.

Another factor which is adding to uncertainty about China’s nuclear future is the structure of the industry. The Chinese government has made it clear that it wishes to cut the number of large SOEs via mergers. Large SOEs – which dominate all industrial sectors – tend to over-produce in an attempt to get bigger and stronger to protect themselves. Too much steel, cement and other materials are produced and electricity is no different.

There are three SOEs that are authorised to operate nuclear plants, CNNC, CGN and SPI (formed by the merger of CPI and SNPTC in 2016). Four other large (mainly coal-fired) power companies hold minority stakes in nuclear plants (Huaneng, Datang, Huadian and Guodian) and it was expected that these would all eventually take majority ownership of new nuclear plants and become operators. This now looks unlikely; mergers are being suggested amongst all of these companies, coal companies, construction and engineering SOEs and even hydropower majors such as the Three Gorges company. It seems unlikely that CNNC and CGN will maintain their independence and a merger between the two has been suggested, despite possible political difficulties with CGN’s strong power base in Guangdong Province. So far as profitability can be measured with Chinese power sector SOEs, it has declined sharply in recent years with the extent of market over-supply, so clearly something has to be done.

Public opinion

It is no longer clear how keen Chinese central state planners are on nuclear. CGN makes pleas at the National People’s Congresses for a much bigger nuclear programme while voices in CNNC tend to be more cautious, in line with what seems to be the majority view within government circles. The forecasts of 200GWe of capacity by 2030, not unusual only a few years ago, now seem very wide of the mark.

Many people used to believe that because China is a centrally- planned economy with a strong one-party government, public opinion did not matter much and opposition to nuclear could be easily overcome. Nothing could be further from the truth. Public opinion matters a great deal in China and, in common with their peers in capitalist democracies, politicians fight shy of any issue that could inflame public opinion in any way. The last thing the Chinese government wants is people protesting on the streets, but this has already happened with two proposed fuel cycle plants. Both were quickly cancelled.

China now has a public acceptance problem with proposed inland sites. Having imposed a moratorium on these to slow the nuclear programme, the government has made a huge problem for itself by giving every impression that these sites are “second best” and may not be as safe as the coastal sites (where all current Chinese reactors are located). The threat in China is that nuclear may become a last resort, rather as it is throughout most of the world. By failing to deal adequately with the fear that surrounds nuclear, the authorities have made it less acceptable. 

*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. 

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