China’s huge sovereign wealth fund is a frequent target of power proposals
The Peoples Republic of China is sitting on huge cash reserves available for investment, domestic or foreign. According to some estimates, the amount is about $4 trillion.
If every dollar of hard currency China holds was translated into a second of travel at the speed of light, it would be about two-thirds of a light year in space ship travel to the nearest star which is Alpha Centauri at a distance of 4.37 light years. Anyway you count it, that’s a lot of money and a lot of people have their eyes on it.
The China Investment Corporation has a reported $482 billion to work with and specifically seeks out global rates of return in large capital intensive projects.
No one believes that the Chinese are in it solely for the money. China sees entry into the U.K. nuclear market as a way to build a showcase for its technical know how and ability to compete successfully in the West.
Take for instance French state-owned nuclear utility EDF which is courting China to invest up to $10 billion new power stations in the U.K.
The Horizon project is on the auction block so to speak. Two German utilities, E.on and RWE pulled out earlier this year as their cash flow dried up when the German government ordered the nation’s eight oldest reactors to be shut down following the Fukushima nuclear disaster. These eight units, their costs long since recovered, were cash cows for the German utilities and the hunt for energy-related investments brought them to the U.K.
EDF has declined to comment on its discussion with China due to the sensitivity of the topic. While the U.K. does not have limits on foreign ownership of nuclear power plants, U.K. government officials are still reportedly nervous about having China as a major equity partner in the projects. The government may limit Chinese firms to minority equity positions.
In the U.S. the NRC just last week stopped progress on a license for the Calvert Cliffs III reactor in Maryland because of foreign ownership rules. Paradoxically, EDF was the foreign investor with Unistar. The NRC gave the firm 60 days to come up with a U.S. investor.
To have or have not
Another U.K. venture already has strong ties to China. Areva is partnered with the China Guangdong Nuclear Power Corp to built two EPRs in China. The two firms are also bidders for the Horizon project.
An underlying issue in the U.K. is the rate of return the government will set for electricity sold from any new nuclear reactors. The rate has to be high enough, regardless of market factors, to attract investors. Political opposition calls this a “subsidy” but proponents point out even more financial support has been tossed to the winds for renewable energy projects.
Tens of thousands of jobs ride on the future of the U.K. nuclear new build which will result in 17-19 Gwe of new power generating capacity. Some political leaders in the U.K. may not be happy about having the Chinese at the table, but if they are the only game in town, then they’d rather have it than nothing at all.
South Africa takes stock of costs
A plan in South Africa to issue a tender for 9.6 Gwe of new nuclear power plants, the second in the past five years, is on hold. The government is trying to get a bead on the costs of the project and whether they country can afford it.
Electricity rates for consumers are a huge political issue though the nation’s heavy industry is more interested in reliable power. The country has a huge class of people trapped in poverty and unemployment as it is officially measured runs about 25% of the workforce. Rates will have to go up to pay for the reactors. About 90% of the electricity used in South Africa comes from coal.
Bidders that have lined up to present their case for the $36 billion program include the China Guangdong Nuclear Power Corp, Areva, Westinghouse, Korea Electric Power, and Rosatom.
Five years ago South Africa cancelled a tender for 12 GWe of new power plants because Eskom, the state-owned electric utility, did not have the funds to pay for it.
The government had been starving the utility for capital funds for years to keep rates down. This led to brownouts and a drop in the nation’s GDP as mining and manufacturing plants had to shut down.
Now the government is hoping the reactor vendors will self-finance the projects to be paid back by the sales of electric power. So far the government has not publicly come to grips with the issue of rate guarantees. Areva is already on record saying that this route is not a sustainable strategy for the company. If it partners with a Chinese firm, that position could change.
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