Chinese power operators may struggle to recoup costs of Gen-III nuclear plants, says S&P

HONG KONG - China may pay a high price to be the world's first country to open nuclear power plants adopting French and U.S. third-generation (Gen-III) reactor technology, according to a new report by S&P Global Ratings.

 
Following recent regulatory approvals on fuel-loading plans, China is on track to open power plants that use two different Gen-III technologies, which have higher safety standards. S&P believes the Chinese project owners may struggle to recoup their sizable investments in the expensive technology.
 
"China's first Gen-III reactors may not be value-accretive to their owners," said S&P Global Ratings credit analyst Gloria Lu. "Multi-year delays in project construction and many technical hiccups in the process of applying the new technology led to significant cost overruns."
 
The technologies are imported, which added to the high costs.
 
China has its own Gen-III designs, which should have lower development costs in the future and benefit its technology exports, S&P says.
 
In April, Chinese regulatory authorities approved the fuel-loading plans for two Gen-III projects: (1) Taishan unit 1, a 1,750 megawatt (MW) reactor in Guangdong province; and (2) Sanmen unit 1 (1,250 MW) in Zhejiang province.
 
Fuel-loading is the most important step ahead of plant commissioning. The next and final step - grid connection- generally follows three to four months after the fuel loading.
 
The Taishan project, primarily owned and operated by China General Nuclear
Power Corp. uses a European Pressurised Reactor (EPR), the Gen-III technology developed by France-based Areva.
 
The Sanmen project is primarily owned and operated by China National Nuclear Corp. and adopts Advanced Passive Pressurised Water Reactor
(AP1000)technology.
 
This Gen-III reactor is designed by the U.S.-based Westinghouse, which was recently reorganised after bankruptcy.
 
A second AP1000 reactor in China, the Haiyang project in Shandong province, is likely to be approved soon for fuel loading.
 
The EPR and the AP1000 technologies are employed in projects under construction outside China, but these have experienced severe delays and budget overruns.
 
China appears to have managed its project execution better than overseas projects, because the others commenced construction earlier but still struggle towards completion, S&P says.
 
“Nevertheless, it is unclear whether the investment costs on these initial reactors will be easy to recoup in China's increasingly competitive energy markets. As it is, some Chinese nuclear plants operate at low utilisation rates.
 
“We estimate that EPR is probably the most expensive third-generation technology at present, but AP1000 is also very costly. The two planned AP1000 Sanmen units (totalling 2,500 MW) could cost at least RMB52.5 billion (about US$8.25 billion) to build, indicating a development cost
of at least US$3,300/per kilowatt (KW).
 
“China's policy settings allow for higher tariffs for nuclear projects with advanced technology, such as the Gen-III. However, the policy lacks clarity on how the tariffs will be determined.”
 
In comparison, the planned Hinkley Point C project in the U.K. will adopt EPR but will benefit from much higher tariffs than the current level charged in the UK. This project is owned by France-based EDF (70%) and the Chinese consortium led by CGN (30%).
 
"We believe the commissioning of first Gen-III reactors in China is significant because it ushers in a new chapter for the nation's nuclear power industry," said Lu.
 
“Future costs will likely come down now that the initial technical and technological hurdles have been cleared, and also because China will use more domestically sourced components in the next projects.”
 
Six AP1000 projects are likely to commence construction in 2018, S&P says. www.standardandpoors.com (ATI).