Is there a slowdown in the Chinese nuclear sector, as some observers have argued, ending nuclear power’s “last hope for growth”? No, says François Morin, Director China of the World Nuclear Association. Nuclear has experienced a temporary setback but is still set for strong growth the coming years.
Much speculation is made about nuclear power in China from the observation that no new construction authorizations have been delivered in 2016 and 2017. This is sometimes characterized as a “slowdown” in line with the rest of the world, giving reason to nuclear pessimists to announce the inexorable decline of nuclear power in the world. They say nuclear power has simply become too expensive, even for the state-owned enterprises in a country like China. But do the most recent facts corroborate such theory?
The National Energy Administration (NEA) issued a report on October 31 with detailed figures showing that electricity consumption, after a fall in 2015 (growth of just 0.5%) has fully recovered in 2016 and shown further growth in the first 9 months of 2017. Growth is now at 6.4%, equal to GDP growth itself.
Renewables have their shortcomings, requiring a large proportion of constant supply. But they also have direct environmental impact, playing a role in desertification growth and consuming a big share of rare earth resources
The main reason is that not only residential demand in the least developed regions has increased substantially (7.5%), but also energy-intensive industries such as chemical industries, mineral products, smelters and others saw energy use rise last year, up to an average 4%1.
Some observers had expected and hoped that “shifts from energy-intensive industries to services and worldwide policies to limit coal use intensify”2 had kicked in in China, all the more since at the end of 2016, China had itself an annual growth target for energy consumption of 2.5% on average during 2016-20203.
But recent news has highlighted that the reality is that the deep structures of national economy are not easily moved4.
Electricity growth versus GDP
Ref. Analysis of China National Bureau of Statistics data.
Coal consumption has grown, its contribution to electricity is around 67%. Coal efficiency has also increased, up to 315gCO2/kWh, but this is only 21g less than seven years ago. With a total of 963GW capacity installed by the end of September 2017, China still has more coal power than any country in the world. When oil and gas are added, thermal sources of electricity still represents some 74% of the mix, and their growth at 6.3% exactly follows national electricity growth!
Can renewables take the lead?
The impressive growth of wind energy over the last few years -and now solar too – has not affected the rather stable share of thermal. Production of electricity from wind has grown again substantially this year (25.7% over the first nine months) to overtake nuclear at 212.8 GWh against 183.4GWh. Wind now accounts for 4.5% of the mix.
But all this at a high cost: installed capacity increased by more than 25% in 2015 and again as much in 2016; however, in spite of efforts to increase it by 11% this year, the utilization rate stays at a depressing level of 5 hours/day utilization. The investment rate starts adapting to this reality and dropped by 14% this year. Solar, even with a 70% rise this year, remains behind, while hydro looks flat at stable 17% of the mix. At 330GW capacity hydro has reached nearly 70% of the whole country potential determined by geography and geology, and probably will never overpass 400GWe due to environmental concerns: in Sichuan people even believe that high density of water reservoirs has impacted the seismic potential of the area.
Variable renewable energy sources have their shortcomings in any system requiring a large proportion of constant supply. But they also have direct environmental impact, playing a role in desertification growth in western China and consuming a big share of rare earth resources in Inner Mongolia (World Bank5). In fast growing China huge wind farms and solar energy plans already present challenges in terms of land needed and efficiency. The more farms are added the more the rejection or curtailment rate will grow, due to the increased sensitivity of the grid to production variations. This is why the gap between installed capacity (9% of total) and actual kWh (4.5% of total) is only rising.
Based on current trends China is on track to overtake France in 2023 and USA in 2028, but, even more impressively, it should double this last figure again by 2040, representing then three times France’s capacity
At the same time overall electricity demand is growing and will continue to grow, as per capita electricity consumption is, in 2017, at 4435 kWh, still less than South Africa and 23% below UK. The 2030 target of 20% fossil-free energy remains accessible, provided that the electricity share in primary energy grows (more electric cars, robots, trains etc.) and that the share of clean sources in electricity production will also grow from 26% today to nearly 35-40%.
To achieve this kind of growth in clean power, nuclear power is the most reliable means. Nuclear electricity generation has grown by 29% in the first nine months of 2017, following a 25% increase in 2016. In this period the utilization rate or load factor increased 3% to 5379 hours (roughly 20 hours/day). That is to say, nuclear plants have produced more and better.
Yes, the original 12th 5 year-plan target of 58GWe operational in 2020 won’t be reached, but honestly, due to construction time, this is a fact known since end 2014 by all serious analysts. The pause in construction which followed the Fukushima Daiichi nuclear accident means that this 58GW target should instead be obtained in 2022.
While perhaps unfortunate this delay can hardly be construed as a policy change. Further, the wish to achieve 150GWe in 2030 has been repeatedly expressed by major decision makers in the industry. For example, He Yu, chairman of CGN, has said: “At least 10 new reactors need to be launched each year in order to achieve the national goal of reducing greenhouse gases”6.
There has in fact never been an official state target for 2030, but it can be safely assumed that approximately 115 GWe should be operating by that time, then making China the world’s leading nuclear country. And at that time like now, China will also still be the first nuclear country in terms of reactors under construction!
Based on current trends China is on track to overtake France in 2023 and USA in 2028, but, even more impressively, it should double this last figure again by 2040, representing then three times France’s capacity. The current suspension of new authorizations is not a retraction of this program or a confirmation of “oversupply”. It’s a reasonable management of competition between products reaching maturity at the same time.
These robust companies have the means to ensure reliable research in all areas and to develop a variety of designs
AP1000 construction as well as EPR had to go through various obstacles (post-Fukushima accident reviews) and technical delays (primary pump/vessels anomalies), which gave the Hualong and CAP1400 designs the opportunity to catch up; these delays are now over with connection to the grid for both AP1000 and EPR expected within months. Once this is done authorization process can resume, either giving priority to AP1000 as per original plan of the 2006 national bid, or by promoting further the Hualong and CAP1400.
The overall picture is not blurry at all and can be accurately enough predicted: there will be 16 to 18 AP1000’s, 2 EPR’s (hopefully 4 for CGN), 2 more VVER’s and the rest (25~30GWe) shared by Hualong and CAP1400.
To what extent is electricity price an obstacle to development?
All Chinese nuclear plants offer competitive electricity prices. The actual selling price for nuclear electricity has been set at 0.43Yuans/kWh; it might rise soon, up to 0.45CNY/kWh. As a comparison the wind price is at 0.51, 0.54, and 0.61CNY/kWh depending on the regions (0.85 for offshore!) and solar is between 0.65 and 0.85CNY/kWh.
In China quantities are determined by regulated quotas not by prices. These quotas are fixed in each province taking into account various factors including recent carbon related policies, local supply balancing, local industry activity etc.
It is true that coal prices, except in two provinces this year, Guangdong and Hunan, are below the nuclear reference price. How could it be different in a country where building a coal power plant costs US$460/kW? This is 4 to 6 times lower than other technologies. And yet still, the nuclear selling price is not that far off.
As a corollary to the supposed intrinsic defects of a regulated market, it is often highlighted that the size and structure of large state-owned enterprises (SOEs) add additional harmful inertia to an insufficiently fluid market. However, to cope with this problem, the state-owned Assets Supervision and Administration Commission (SASAC) has been actively restructuring SOEs in a bid to improve efficiency, with the number of central SOEs falling in 2017 to 98, down sharply from 196 in 20037.
This is partly done by merging companies, creating even bigger entities and enhancing monopolies. But the major nuclear companies have avoided this kind of merger; they remain healthy competitors that earn profits! In 2016 CNNC’s profit rose 32.4% versus 2015, its highest level ever. All indicators exceeded SASACs assessment targets.
CGN’s global revenue grew by 12% in 2015 up to 50.6BCNY (and profit rose by 18.2% to11.2BCNY) and reached 65.4BCNY in 2016 (again +29%). These figures do not support the gloomy picture drawn by skeptics. Somehow these SOEs, designated as a problem by itself, might be the solution to a complex problem of energy structure evolution in a low-carbon economy.
These robust companies have the means to ensure reliable research in all areas and to develop a variety of designs which cannot be described as an “uncertainty in type of reactor in the future”. Yes, the Chinese fleet is made up of a mix of Canadian, French, Russian, US and Chinese reactors or technologies. As the famous French political writer Benjamin Constant once noted “Variety is what constitutes organization; uniformity is mere mechanism”.
The CO2 emissions goal as well as industry requirements and electricity demand growth only make the realization of the nuclear program more urgent
Would the learning effect be the strongest characteristic of the nuclear industry, then all efforts should be made to unify the fleet. But specific factors limit the learning rate in the construction of nuclear plants. The diversity of Chinese designs is supported by the breadth of research institutes and supply chain factories. An intense localization process has been undertaken leading to 85% Chinese local content today against 30% in 2008. The Chinese have the capacity to build up to 40 units per year. Each big equipment manufacturing company, such as Shanghai Electric, Dongfang Electric, Harbin Electric, 1st and 2nd Heavy Industry, can supply 5 sets of key components per year.
Public acceptance is a complex issue that cannot be described through polls results, all the more since such polls have not been carried out in China. The Chinese people are now more susceptible to foreign attitudes, skepticism and anti-nuclear campaigns than they previously were. However the obvious cleanliness and positive safety records of nuclear are the basis for the general support of nuclear.
In conclusion one can see the current pause in new build authorizations as a normal trend following developments in the national economy and adjustment to the expected phases of industrial development. The “slowdown” is a theory built up on opportunistic data, in particular the tiny growth of GDP and energy in 2015. However, the CO2 emissions goal as well as industry requirements and electricity demand growth only make the realization of the nuclear program more urgent. A shift of few years does not undermine the decision, the construction and supply chain capabilities or the building up of technological competences.
Performance records of nuclear plants are very good. And we have not even mentioned that new projects for small modular reactors (SMRs) are being launched, a travelling wave reactor joint project is on track, a high temperature reactor is close to final installation, export projects are accumulating. Nuclear power is not a ‘last resort’ but has a strong future in China.
2 ref. International Energy Outlook 2016 IEA
“Some energy market analysts have been quick to write off China’s growth potential as a market for thermal coal exports, advancing the argument that the Asian country is diversifying away from fossil fuels and into other energy sources such as solar and wind”
6Interview of He Yu, CGN chairman, March 6, 2017. http://www.cgnpc.com.cn/n471046/n471126/n471156/c1314955/content.html