China Nuclear 2018 - Breaking the Silence

Last week on Nicobar News + Views, David examined the drought of activity China nuclear has experienced so far in 2017 and brought us to the conclusion: mid-2018 will be a key time to look out for new FCDs and plant approvals in China nuclear. Indeed, the industry has been waiting with bated breath as the AP1000 at Sanmen Unit 1 has now entered the fuel loading phase and appears to be in the home stretch for grid connection in early 2018. China's prospects for further deployment this year have unfortunately been boxed in by its sensible decision to:

1. Elect to ONLY use 3rd generation NPP designs going forward, and
2. To rigorously adhere to the  [Experimental -> Demonstration -> Commercial-> NOAK] process rule for deploying new technology.

Once the proof-of-concept milestone for the AP1000 technology has been demonstrated and put in the rear view mirror, what specific shoes can we expect to drop in 2018? Put another way: we've said before that the floodgates are going to open in 2018, but which plant sites are going to be part of that flood? Answering this question is the focus of the piece today, but to get there, we're first going to eliminate the FCDs that we WON'T be seeing in 2018:

INLAND PLANTS

Before the 2011 Fukushima accident prompted an industry-wide review of the seismic evaluations for the inland plants, China's inland nuclear power plants were just over the horizon. Notably, the inland site at Xianning/Dafan in Hubei Province had even received major equipment onsite before the project was thrown into bureaucratic limbo and the equipment was re-allocated to Xudapu. Since the construction moratorium was lifted in 2012,  there have been intermittent and frequently contradictory rumblings and rebuttals from official spokespeople as to the fate of the inland plants. The root of this apparent confusion comes from an apparent disconnect between regional governments eager to engage in site selection, pre-feasibility studies, and other such preparations in order to foster development within their local jurisdictions, while the national regulatory higher-ups seem much less certain on the inland plants.

The most recent back-and-forth salvo on this topic came earlier this year in mid-February when Wang Yiren, Vice Director of State Administration of Science Tech & Industry for National Defense & Vice Chairman of the Chinese Atomic Energy Association stated publicly “If things go well, construction of inland nuclear power stations will begin during the 13th 5-Year-Plan period” (i.e. 2016-2020). Just a month later in an interview, the assistant section chief for nuclear energy within the Chinese National Energy Commission said the industry "has no timetable" to construct inland plants during the 13th 5YP period. What we conclude from these vague statements is that even if we see inland plants by 2020, they wouldn't be any time over the next two years. Thus, we have ruled out FCDs at inland plants in 2018 (i.e. Xianning/Dafan, Pengze and Taohuajiang)

NOAK HPRs

The next batch of new builds we can rule out for the time being are all of the planned Hualong 1 reactors – now being referred to as HPR1000s. While these plants are eventually going to be rolled out at an impressive clip – approximately 4-6 HPRs starting construction per year – we won’t be seeing that rate until 2020 at the earliest according to state media. And keeping in line with the tech deployment process I mentioned above, the HPR design is still within its proof of concept stage with the first commercial plants at Fangchenggang Unit 3/4 and Fuqing Unit 5/6. Since construction started on these first of a kind plants in 2015, commercial operation and the next batch of NOAK HPR approvals will have to wait until 2020 at a minimum.

So if we’re to assume that we won’t reasonably see any inland plants or NOAK HPRs during 2018 – what form will all the activity David was describing come in? Here are a few.

CAP1400

First, the low hanging fruit here will be the demonstration CAP1400 plants up at Shandong Province's Shidaowan site. This indigenous Chinese design was spun off from the Westinghouse AP1000 tech transfer and is stuck in the same situation as other planned Gen-III plants - it’s based on a technology lineage which hasn't ticked that crucial box for demonstrated proof of concept. Major equipment was delivered onsite as of many months ago, the site is totally prepped to begin pouring concrete, and an army of construction workers is undoubtedly prepped to roll up their sleeves as soon as the word is given. SNPTC has been whipping manufacturers in shape, pitting them against each other to produce competitive products simultaneously to see who is more capable, and conversations are underway on an international scale to export the CAP1400 to new markets – but no construction is happening. Officially, the publicized FCD for the CAP1400 Unit 1 is October 30, 2017, with the second unit to follow one year later on October 30, 2018. Originally, Sanmen Unit 1 was expected to start commercial operation in Q3 of this year, so an October FCD for the CAP1400 was originally a reasonable plan. With Sanmen now likely delayed out until early 2018, SPIC will be in a hard position: either abandon the well-publicized October FCD or abandon the proof-of-concept flowchart that China nuclear generally abides by. Our personal prediction is that we'll see CAP1400 FCD quietly pushed to 2018, but no matter whether it happens at the end of this year or the beginning of the next, the CAP1400 is going to start getting built soon.

 Other AP1000s

The people pulling strings at the top of the Chinese nuclear value chain seemed to have learned a thing or two in kindergarten - case in point they made sure that no sooner did SNPTC get its hands on shiny new toys from Westinghouse, the AP1000 technology from Westinghouse was it turned around and licensed to CGN and CNNC. Following SNPTC's successful deployment of the technology at Sanmen and Haiyang, we expect to see all three Chinese majors deploying more AP1000s at their respective sites (note that CNNC owns Sanmen, but the technical work is all being performed by SNPTC - CNNC is almost delegated to an investor role).

CGN's first AP1000s will be deployed at the Lufeng site in Guangdong and we expect to see FCD for those before the end of 2018. CNNC's first AP1000s are likely to be at Xudapu in northeastern Liaoning Province and Haixing in Hebei Province.  All of these sites are planned to eventually house 4-6 reactors, but we would expect no more than 2 to enter construction simultaneously.

Other potential approved sites for AP1000s include Sanmen Unit 3/4 and Haiyang Unit 3/4 but we get the impression from Chinese contacts that breaking ground on new sites is of higher priority.  Fangchenggang Units 5/6 are also currently slated on the books to be AP1000s and official sources estimate FCD in 2018,  but several factors make us doubt that we’ll actually see any concrete poured on those in 2018:

• CGN is the designated site owner, and they’ll be preoccupied with their first AP1000 at Lufeng; 
• Units 3-4 are still in early build schedule, and there’s no precedence in China for one company having 4 early stage units at the same site underway at once
• Recently without much fanfare or notice, China has been quietly setting precedent for changing reactors that were previously planned as AP1000s to be HPR1000s instead. Zhangzhou Units 1-4 were reported as future AP1000s at the beginning of 2016 but are now indicated officially as HPR1000s, and the story is similar at Taipingling Units 1-2. Given that Units 3-4 at Fangchenggang are already housing FOAK HPR1000s, we' wouldn't be terribly surprised at all if Fangchenggang 5-6 also ended up getting switched over to HPR1000s as well, which means no FCD until 2020 or beyond.

Overall, we see a pool of 8-12 units that could get their construction license for FCD in 2018 – but to review the major assumptions we’ve made here:

• China won’t get around to inland plant builds for at least the next 2-3 years. We think that’s a pretty safe bet, but does anyone have any convincing opposing evidence?
• We think that there’s no real chance that China will defy its own rule here and start breaking ground on more HPRs before the first one is delivering to the grid – but what do you think?

To conclude on the idea of 2018 FCDs – 8-12 units in one year is a grueling pace but not unprecedented in China's history of new nuclear builds. After all China previously broke ground on 9 new units in 2009 and 10 in 2010. We’ll be excited to see things move at a quicker pace than they have this previous year, but it's not going to be a record breaking year. However, while we’ve been talking FCDs this whole time, maybe you picked up on from a few points that I’ve mentioned that it’s a bit of a red herring for our overseas readers who want to be participating in these projects - there's no need to be concerned about FCDs being pushed to 2019, 2020, or even beyond.  Procurement timelines are by no means slowing down – we’re seeing international RFPs and tenders going live for all of the plants we've mentioned, both those with and without near-term construction dates. Keep your ear pointed to the ground, and let us know if there's somewhere we could help.