Opportunities in China’s nuclear revival

Opportunities in China’s nuclear revival

Shifts in the energy industry and commodity markets have meant a consistent decline for the nuclear industry in the West. Recent developments in China however, have signaled that the PRC is committed to advancing their alternative energy portfolio through means of nuclear energy.

China’s ambitions to diversify its energy portfolio, in order to reduce its reliance on heavily polluting coal and keep pace with growth, has generated a significant advance towards nuclear energy in recent years. Just this month, two sensational nuclear deals were signed into agreement between Chinese SOE’s and Western government and enterprise.

Last week, Xi Jinping wrapped up his UK tour by signing into agreement the $27 billion Hinkley Point contract – a deal between China’s CGN (China General Nuclear Power Corporation), the UK government, and France’s EDF Energy to oversee the building of new nuclear reactors in England.

Earlier in October, China’s CNNC (China National Nuclear Corporation) and Bill Gates’ TerraPower signed an MOU to collaborate on progressive forms of nuclear technology. This agreement will oversee the testing of TerraPower’s new generation of advanced nuclear reactors, the TWR (Traveling Wave Reactor) in China, before rolling it out to global markets. These important deals are merely the most recent affirmations of China’s expanding nuclear power portfolio and the economic potential it holds for foreign investment and technology.

China’s Preferred Source of Alternative Energy

Though coal and other traditional forms of energy still compose the majority of the PRC’s energy portfolio, the central government is increasingly prioritizing nuclear energy as the logical alternative energy source — promoting nuclear energy as the route to clean growth and an optimized energy structure.

Nuclear power plants are accessible in that they can be more readily developed in different geographies and climates, unlike other alternative energy sources such as solar, hydro, and wind power that depend on the elements. This is a crucial factor in a geographically diverse country such as China.

In many Western nations, there has been a steady downturn in the nuclear energy industry, due to safety concerns and high costs. Nevertheless, “China doesn’t face [these] nuclear restraints.” The 2011 Fukushima disaster in neighbouring Japan did little to undermine Chinese nuclear ambitions but served to strengthen it more by influencing the state to take safety issues seriously.

In March of this year, China resumed approvals for the building of new nuclear reactors, the first approvals for new reactors since Fukushima. From 2011 to 2015, the State Council and other bodies revised and enhanced safety plans, strengthened regulatory policies, and developed improved strategies for the long term growth and development of nuclear power.

At a time when the central government is confronted with the costly consequences of air pollution (citizen discontent and pressures on the burgeoning health care system), Beijing has the need and the capital to wager on the development of its nuclear energy industry.

 Implications for investors and markets

At the end of 2013, nuclear energy accounted for 2.11% of China’s power capacity. The central government since has committed to build 400 more reactors by 2050 and vowed to realize 58 GW of nuclear generation capacity by 2020.

China’s advent into foreign markets and interest in foreign technology is an important element in its nuclear energy development, illustrating the market potential offered for foreign investors, markets, and technology. This economic potential will be manifested through outward investment — Chinese FDI flowing into the markets that offer leading nuclear technology (primarily found in the West), as well as greater collaborate and trade opportunities between China and these markets.

The TerraPower and CNNC deal highlights China’s pursuit of the best nuclear technology to complement its capital drive and R&D in this sector; the state’s strategy is to build nuclear reactors through indigenizing the best designs from the west. As part of its global “going-out strategy”, China is also eager for its companies to find investment opportunities abroad, as the Hinkley Point agreement demonstrates.

Critics of these nuclear deals between China and the West have focused on security issues. However, as the Economist also points out, the Chinese acquisition of Western assets or companies does not cause economic harm ”if the project is subject to the full rigour of safety and security reviews.” In other words, China is not ‘taking over’ the West through its nuclear power investments.

Western nations are seeing a steady demise of their nuclear power industries, with plants shutting down nuclear reactors due to high costs and government subsidizing other means of alternative energy. On the other hand, China’s power sector, despite the nation’s economic slowdown, is projected to double in twenty years, and nuclear energy will play an integral part.

“By adopting top international standards and ensuring safety, China should lose no time in constructing nuclear power projects”, Xi stated recently. China’s next test will not be whether they are serious about clean energy in the form of nuclear power, but whether their nascent nuclear regime is capable of following through with transparency and first-class safety standards.

About Author

Yvonne Lau

Yvonne currently conducts research for Thomson Reuter's Legal Media Group and started her career at The Economist Group. She is also a contributor for China Daily and the Asia-Pacific Foundation of Canada, and directs her writing and research on emerging markets, commodities and sustainable development.