Power to the People's Republic! That could easily be the slogan of the nuclear power executives winging their way to Beijing these days to pitch next-generation reactor designs, downplay rivals' plans, and woo the Communist Party leadership. President Hu Jintao's government is committed to spending $50 billion to increase nuclear power generation capacity from 8.7 million kilowatts today to 40 million kilowatts by 2020. That's one of the largest buildouts in the industry's history. And by the time that $50 billion is spent, some 30 new reactors will be pumping power to China's most important cities, in addition to the nine operating today. Most are to be built along a rapidly industrializing coastal arc stretching from Shandong province in the northeast to Guangdong province in the south.
The sheer scale of the ramp-up has global energy players salivating, including such giants as France's Areva Group, the world's biggest nuclear engineering firm with $13.5 billion in sales, Westinghouse Electric, Mitsubishi Heavy Industries, and Russia's Atomstroyexport. General Electric Co.'s (GE ) nuclear division is in the chase as well, while Paris-based Alstom and Germany's Siemens hope to cash in on contracts for reactor turbines and control and instrumentation systems.
The first contract up for grabs, valued at roughly $8 billion, is for four reactors in southern China: two in Zhejiang province's Sanmen and another pair in Yangjiang in Guangdong province. Beijing is expected to make its decision in October, and right now it looks like a two-way race between Areva and a consortium led by Westinghouse, which is owned by British Nuclear Fuels. It has been years since an order for a reactor came from a U.S. utility, and even orders from nuke-friendly countries such as France have been skimpy. "It's pretty critical," says Westinghouse CEO Stephen R. Tritch. "If you are not selected early, you could be locked out of the market."
BROWNOUTS AND SMOG
It is no secret that China needs a massive infusion of new energy to keep the juice flowing to its manufacturing sector. Electricity brownouts are a regular feature of life in Shanghai and Guangzhou. And nuclear power only kicked in about 2% of China's total power supply last year, vs. 30% in Japan. Even so, nuclear plants are just one part of a much larger Chinese push to expand and upgrade the country's power grid.
In fact, demand for power is growing so fast that even if China builds all the nuclear plants on the drawing board, industry officials say atomic energy will account for only about 4% of total electricity generation. That's because the country is also building dozens of conventional power plants. But China wants to move away from the high-sulfur coal-fired plants blamed for its world-class smog and acid rain woes, a goal that increases the value of nuclear power. "Nuclear is clean and environmentally sound," says Wu Zongxin, a professor at the Institute of Nuclear and New Energy Technology at Beijing-based Tsinghua University.
Areva and Westinghouse were thrilled when China opted for their type of pressurized water reactors in the current contract bidding. In doing so, the Chinese ruled out rival technology such as GE's boiling water reactors and the heavy water plants sold by Atomic Energy of Canada, two of which are already operating in China. GE and AEC say they hope to win over the Chinese in future plant orders. "We have been asking if we can bid, but unfortunately they want pressurized water reactors," says Andy White, president & CEO of GE Energy's Wilmington (N.C.)-based nuclear business. "China should move to a two-technology model, like other countries."
Yet Beijing is extracting a hefty concession from the bidders by insisting on massive transfers of nuclear knowhow to local partners. Both Areva and Westinghouse have committed to sharing their technology with the Chinese to clinch deals. China is following a well-worn path: Japan, South Korea, and even France used technology provided by GE and Westinghouse to build their own nuclear industries. "If they are interested in becoming totally self-sufficient, we will help them do so," says CEO Tritch. "We are always inventing better technology." The pressurized water reactor Westinghouse wants to sell to China is its new AP1000, which the company advertises as much safer than the 1970s-era reactors that dominate in China and elsewhere.
The French also have pulled out all the stops to snag contracts. Areva already has four Chinese reactors up and running, and it has won points for providing technical assistance for the construction of a pair of Chinese-designed reactors that came online in 2002 and 2004. The company's latest pressurized water reactor has 1,700 MW of capacity per unit, vs. 1,000 for the proposed Westinghouse reactor. "We have a product that is quite advanced,"says Arnaud de Bourayne, head of China operations for Areva.
Westinghouse's sales job has been complicated by a decision earlier this year by parent British Nuclear Fuels to exit the power plant business and sell Westinghouse. Rivals think this uncertainty could taint its bid. Another issue: U.S. congressional opposition to extending loans and loan guarantees from the U.S. Export-Import Bank. One reason is that Westinghouse, though based in Monroeville, Pa., is British-owned and will probably be sold to another foreign outfit, so critics say it doesn't deserve help from U.S. taxpayers.
THE POLITICS OF POWER
An appropriations bill passed by the House of Representatives removed Ex-Im Bank financing authorization, but Westinghouse is hopeful the Senate will restore it in upcoming conference committee meetings. The company, which has the Administration's support, points out that Westinghouse still employs 5,000 workers in the U.S. To bolster their case, company officials indicate that the lack of such financing may be a dealbreaker. And fat orders for nuclear plants could help ease the U.S. trade imbalance with China.
The other big potential player is Japan's Mitsubishi Heavy Industries, which already supplies the Chinese with coal- and gas-fired plants. Mitsubishi is a longtime partner of Westinghouse and may even buy the company from the British. "Nuclear reactors are becoming a core business," says President Kazuo Tsukuda. "We need the Westinghouse brand to grow." Whoever wins this first round, count on foreign energy executives' mad dash to China to continue for many years to come.
By Brian Bremner in Hong Kong and Chester Dawson in New York, with Diane Brady in New York, Joseph Weber in Chicago, and Carol Matlack in Paris