After the China State Council's approval of the 12th Five Year Plan and the Nuclear Safety Plan in late May 2012, there have been no significant official announcements on the status of nuclear sector development in China. While there are signs that the State Council may be ready to allow the restart of nuclear power projects, the much awaited official announcement is likely to come only after the full leadership transition takes effect later this year.
As the world's largest energy user, accounting for almost half of all nuclear reactors currently under construction, the announcement from China could send a powerful positive signal to the battered nuclear industry stocks, such as Nuclear Energy ETF (NLR), Global X Uranium ETF (URA), and others.
However, the longer-term effect of the potential announcement will depend on the size and pace of the program. Here is what investors should watch for:
- 2020 Target Nuclear Capacity: The key question is whether the earlier target of 80GW might be cut back. The latest unofficial announcements indicate that the target may be set at 60GW of nuclear generating capacity. Even at this level, China's nuclear fleet would be on the course to match that of France, which currently hosts the second largest nuclear fleet in the world.
- Construction of New vs. Pre-approved Nuclear Projects: Mainland China currently has 26 reactors under construction. Prior to the Fukushima accident, the government had also pre-approved development of the four nuclear projects (seven reactors) in Fuqing, Tianwan, Yangjiang and Shidaowan. Resumption of these projects, while positive, would only be an incremental step forward. Investors should keep an eye on the plans for new (in addition to pre-approved) projects as a sign of resuming the full-scale nuclear development program.
- Enhanced Safety Standards: China is expected to raise safety standards for the nuclear power industry, given concerns over nuclear power plant construction and operation. In this case, development of new projects (particularly for Gen II+ reactors) may result in further delays and higher costs. At the same time, enhanced safety standards may boost orders for newer Gen III reactors built in China by Westinghouse and Areva (OTCPK:ARVCF).
While the announcement would undoubtedly be an important positive sign for the global nuclear industry, the strength of this sign will depend on the details outlined above. The strength of the program will determine whether it can set the basis for a sustainable uptrend for nuclear equities or become just another headline-driven temporary rally.