New Nukes is Good Nukes in China

China is ripe for nuclear power. It’s the world’s third-biggest oil importer and recently became a net coal importer for the first time. Currently around 80% of China’s electricity is generated by coal-powered plants. Hydroelectric makes up another 18% (they make their dams really, really big), and nuclear fills the pot with a paltry 2%.

Meanwhile, energy demand is booming. There are 1.3 billion people demanding increasing amounts of energy, and with a rapidly urbanizing economy that is expected to grow another 11% this year, that number is only expected to grow.

Meanwhile, China is already choking on pollution; the air quality is so bad in certain major cities that Olympic athletic performance is expected to suffer as a result. China is also one of the largest emitters of greenhouse gases in the world, and has an acid rain problem that’s harming trees and polluting water across the country.

In other words, China is primed for alternative energy growth, and the leading prospect is nuclear.

China Deals

China only has 11 nuclear reactors in operation and five more under construction, but there are plans to build another 30 or so by 2020. What’s the rush? Well, China has a target of having 4% of its electricity generated by nuclear reactors by 2020. To do that, it will need to build two reactors a year.

Consider this report at Bloomberg:

“Last year, in just one year, China added almost 100 gigawatts of new coal plants, so you can believe that in 45 years, China needs and can build 300 gigawatts of nuclear power,” said Yang Q. Ruan, chief representative and director of technical programs in China for Canada’s AECL.

Some estimates say that a new coal-burning power plant opens every day in China, and still the demand for electricity is overwhelming.

Recent announcements, such as the one made by French company Areva in November and another by Westinghouse this week, show how China is going to fill the gap with nuclear.

The $12 billion Areva deal includes two “third-generation reactors” and access to 35% of the uranium produced by Areva’s fuel unit through 2026. The Westinghouse deal is just the latest in an ongoing relationship with China – it is already providing four AP1000 nuclear power reactors from a deal made in July. Included in both deals are agreements for technology transfer to local suppliers.

All that sounds good for the existing nuclear industry, but there is an Achilles' heel: With all this influx of technology and know-how, will China grow its own nuclear industry to compete with the established giants in the West? As stated in this article in Bloomberg:

Deals signed this year with Westinghouse Electric Co. and Areva SA will put the Chinese in position to copy the latest technology. Its biggest threat may be as a competitor in selling the $3 billion to $5 billion nuclear plants at home and abroad. China’s atomic industry may follow the copy-and-compete blueprint laid out by local makers of cars, drugs and coal-fired power plants.

China has taken the copy-and-compete method of business and turned it into the machine that drives China’s economic growth. Imagine if they can do the same thing with nuclear reactors – assuming they achieve a better safety record than their less-than-perfect coal industry, and skip the recalls we saw in the toys this year.

What would that mean? Who’d feel the pain? France, and perhaps companies like Areva.

France is the poster child for nuclear energy, with nearly 80 percent of its electricity coming from reactors. On the other side of the equation are Sweden and Germany, which are looking to completely exit the nuclear energy industry by 2010 and 2020 respectively.

Sitting somewhere in the middle is the U.S. There are currently 104 nuclear reactors in the U.S. supplying about 20 percent of the U.S.’ electricity. But as we know, there have been no new reactors ordered since 1979 and the Three Mile Island accident. There is some movement in the U.S. industry (as noted in this article), with the recent submission of applications to the Nuclear Regulatory Commission for the first time in 30 years.

Does this mean that the nuclear industry believes the U.S. public is ready for new nuclear power plants? Not necessarily. From EnergyBiz magazine:

Critics say that the renewed interest is about winning government largess. “Pro-nuclear groups herald the coming flood of applications as proof that nuclear energy makes economic sense. Nonsense. The only reason investors are interested: government handouts. Absent those subsidies, investor interest would be zero,” write Jerry Taylor and Peter Van Doren, scholars at the conservative Cato Institute, in Forbes.

Those subsidies largely come in terms of legal indemnification against accidents like the kind that happened at Three Mile Island nearly 30 years ago.

So … are more U.S. nuclear plants viable?

Who knows? Republicans traditionally support nuclear power, while democrats traditionally oppose it. But with the added pressures of global warming and high oil prices, the current crop of candidates is divided on the role of nuclear power. Some are supportive of the idea in a vacuum, but balk at the specifics – especially when it comes to locating nuclear waste disposal sites.

But the nuclear power companies are not giving up. They have turned elsewhere, specifically Asia, to get plants up and running … and to show that it can be done less expensively and safely than most people think.

Strangely enough, China may end up being the early adoptor of atomic technologies that are later used in the U.S. Even odder, those reactors could come with the familiar “Made in China” stamp.

Update On The Market

Meanwhile, what’s happening in the nuclear “market”?

Uranium, the fuel that drives the nuclear process, has seen some serious price fluctuations as nuclear expectations ebb and flow.

Ux U3O8 Prices

We talked about the entrance of hedge funds into the uranium market back in March, before the price hit the all-time high of almost $140 a pound in June. We also talked about the subsequent plunge that occurred in August. Given the private nature of uranium transactions, it can be difficult to predict pricing. But, given the amount of proposed construction in China, demand is certain to go up in the coming years, just as we’ve seen with copper, coal and just about any commodity important to China.

The interesting thing is that price increases in uranium won’t really affect the cost of electricity because fuel costs are only 5% of a reactor’s costs. Still, unless you’re in a hedge fund that owns the rights to some uranium, or someone figures out a way to create a uranium ETF, the only way to play uranium is by buying companies like Westinghouse, Areva or a host of others.

Comments

[Geoffrey Lordi:]

This is a well researched article: thanks.

2007 Dec 11 09:12 PM

[omooc:]

Which companies will benefit from China's plans? Seems that companies such as CCJ have not benefitted from China's moves. Any further thoughts on this? omooc

2007 Dec 11 10:58 PM

[Tom B:]

Good article.

I know DUK is planning to apply for a new nuke. I find nukes worrisome because of the waste issue and the isolated reports of increased cancer rates down wind of plants. Of course, coal plants release mercury and carcinogens, and additionally contribute to global warming.

Global warming, in my view, is the planet's biggest problem right now, so I can't see avoiding nukes in the short term. In the long term, maybe strides can be made with solar and/or wind.

A point of difficulty with nukes is siting. Not only do you not want them in YOUR backyard, but they need cooling water. We have a plant that may shut down due to drought-- that's right-- drought.

EVERYTHING circles back to environmental stewardship.

2007 Dec 12 09:15 AM

[User 130282:]

Interesting article, but the comments about Sweden and Germany appear to be way out of date. Sweden in particular, has shifted dramatically from their anti-nuclear stance. Public support has never been higher and they are upgrading some reactors. Uranium exploration is flourishing -- with government cooperation (check out Mawson Resources, for example). Germany has also been softening its anti-nuclear stance. Their is now a major push for nuclear in Europe because of energy security and self-sufficiency needs.

2007 Dec 14 11:58 AM