After Fukushima, China halted its nuclear power construction program, believing it prudent to reassess strategies and affirm whether nuclear power is appropriate. Apparently, the assessment is complete, and China is moving forward with an ambitious nuclear construction program.
When it comes to energy, context is important. The context for China is the nation's need to maintain a competitive advantage. Keeping production costs to a minimum will help in this regard.
It appears as though China is refocusing on production costs and rethinking environmental costs. Using coal and natural gas to fuel the nation's power industry simply costs too much, and threatens China's competitive position.
The numbers tell the story. It appears that China is paying over $6 per 1 million British thermal units (MMBtu) for delivered thermal coal. In contrast, U.S. utilities pay approximately $2 per MMBtu for the same coal. If accurate, these numbers suggest that China's production costs are approximately $55 per megawatt-hour for an average coal plant, while that same plant in the U.S. is approximately $20 per megawatt-hour. China's coal position is not competitive.
The situation is worse with natural gas. In Asia, the marginal price for natural gas was recently priced in excess of $18 per MMBtu vs. $2.50 per MMBtu for the U.S. These numbers suggest that China's average gas turbine has a production cost of approximately $125 per megawatt-hour, while that same plant in the U.S. is producing approximately $18 per megawatt-hour. China's natural gas position is uncompetitive.
China has a problem. I'll leave macroeconomic analysis to my wiser colleagues, but if China doesn't change course, it will be left behind.
China has only four practical options, and it appears as though the nation has selected all four. The most important is energy efficiency, which includes smart-grid technologies and demand-response programs. Energy efficiency has negative production costs, and it is the low-hanging fruit for any nation, including China.
The next bargain is renewable energy. Production costs for wind and solar are near zero. Unfortunately, these resources are not dispatchable, and they aren't a reliable source for China's base loads. But, solar is an excellent peaking generator, and it can displace natural gas.
The third is hydroelectric, a controversial source of renewable energy. Some hydroelectric is dispatchable, and its production costs are low (albeit not zero). Geography and geology limit the number and location of hydroelectric resources.
The fourth is nuclear power, which has a production cost of approximately $22 per megawatt-hour. As a bonus, nuclear power is carbon-free, while coal and natural gas power plants are choking China's skies.
For China, energy efficiency, renewable and hydroelectric power aren't enough. That's why nuclear power is so important. For China, nuclear energy provides safe, economic and reliable sources of power.
This may explain why Fuel Cycle Week's Dan Yurman recently reported that the Chinese government just made two big decisions:
First, it announced the release of a long-awaited safety plan that will result in the lifting of a moratorium on new nuclear reactor projects. Second, it announced approval of an IPO by China National Nuclear Power, the country's largest reactor developer, to raise the equivalent of $27.3 billion.
Yurman goes on to say that China's list of new nuclear stations total 77 reactors or 86,000 megawatts of new power production. This is huge. To reduce risks and costs, China appears to be relying on several designs, but two dominate the discussions.
The first is the CPR-1000, a pressurized water reactor based on a French 900-megawatt design. The Chinese improved the design to increase the capacity to 1,000 megawatts and stretch the operating life to 60 years. So far, 15 are under construction and 13 more are planned.
The second is the AP1000, originally designed by Westinghouse, a unit of Toshiba. China's AP1000 is similar, but not exactly the same as the AP1000's planned for Southern's (SO) new Vogtle units and SCANA's (SCG) new V.C. Summer units. In addition, Duke Energy (DUK) and Next Era Energy (NEE) selected AP1000s for their proposed units. Nevertheless, lessons learned in China will be helpful in the U.S. China has four AP1000s under construction, and 15 more are planned.
Yurman reports that China plans to have 100 operational nuclear reactors by 2020, which could make it the biggest buyer of uranium in the world. It would also be the fastest nuclear build in the history of the industry.
It's not just China. Fuel Cycle Week is also reporting that Westinghouse is negotiating project development agreements to construct more AP1000s with a state-run utility in India.
