Carbon Neutral by 2060The Role of Nuclear Power in China’s Energy TransitionApril 14, 2021 – World Nuclear Fuel Cycle 2021

David Fishman The Lantau Group

Agenda / Content

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Nuclear Sector Overview1

China Fuel Cycle2

Looking to the Future3

Lantau Group4

The Chinese nuclear power sector continues to expand

• 49 Operational Commercial Power Reactors (50 GW)– Mostly PWRs, some PHWRs

– 40 gigawatt-level reactors

– 7 3G reactors, the rest 2G and 2G+

• 17 Under-Construction Commercial Power Reactors (17 GW) – Mostly PWR (one HTGR, two sodium cooled)

– Mostly 3G (the last of several 2G+ reactors approved the start of last decade will complete this year)

• 41+ Units with Site Approval – All 3G Units

• 60+ Planned Reactors (includes inland units)

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Sector Overview

• Capacity Goal: 70 GW by 2025 (As reported in Xinhua 14th Five Year Plan coverage in March)

• Energy Mix Goals: 15% non-fossil by 2020 (met);20% by 2030 (8-10% nuclear)

Newsfeed: Recent milestones of interest in China nuclear

• August 20, 2020: Zhangzhou Unit 2 FCD

• September 30, 2020: Tianwan Unit 5 enters commercial operation

• October 13, 2020: Taipingling Unit 2 FCD

• December 27, 2020: Xiapu Unit 2 FCD (sodium-cooled fast reactor)

• December 31, 2020: San’ao Unit 1 FCD

• January 1, 2021: The 14th Five Year Plan period starts (although the document hasn’t been released yet). The Chinese nuclear industry built 21 reactors during the 13th FYP (2016-2020)

• January 30, 2021: Fuqing Unit 5 enters commercial operation. This is the first Hualong One employing the CNNC variant and is the reference unit for Karachi Unit 2 and 3 in Pakistan.

• March 31, 2021: Construction license issued to Huaneng Group for Changjiang Unit 3 and 4

• April 14, 2021: Tianwan Unit 6, a Generation 2+ ACPR1000, begins its first fuel load

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Sector Overview

After several years of slow progress, the pace of development in the last 9 months has been rapid

China nuclear industry structure

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• Self-sufficiency and localization key themes throughout;

• Heavily vertically integrated within three massive SOE utilities; virtually no private industry;

• Each utility boasts its own lineup of companies specializing in research, design, technical services, engineering procurement, etc.;

• Fuel cycle is a notable exception, with almost all fuel cycle activities and capabilities housed within CNNC (except mining).

Sector Overview

Plant equity structure is more diversified, often with ownership stakes by Big 5 and smaller utilities too.

Chinese nuclear technology trees by owner

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Sector Overview

2G 3G

FramatomeM310

CPR1000 ACPR1000 ACPR1000+

Hualong One (Integrated）

Hualong One (CGN Variant)

CNP300 CNP600 CNP1000 ACP1000 Hualong One (CNNC Variant)

AP1000 CAP1400

Other oddities and one-offs: • Huaneng is the lead developer of the Shidaowan NPP site, which is currently building an almost-complete 4G High-Temperature

Gas Reactor (HTR) with two 105 MWe units turning a 210 MWe turbine. Huaneng was recently approved to develop Changjiang Phase 2 in Hainan, a CNNC plant.

• CNNC also operates 6 Russian VVERs at its Tianwan site and 2 Canadian CANDUs at its Qinshan site. CGN operates 2 French EPRs at its Taishan site.

China’s fuel cycle value chain

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SPIC’s participation in fuel cycle is limited to investment in the Baotou Nuclear Fuel Co., which produces AP1000 and CAP1400 fuel assemblies.

Fuel Cycle

• China’s stated goal for uranium production is 1/3 -1/3 -1/3 (domestic production – foreign mine ownership –spot market)

• All domestic mines owned and operated by CNNC’s SinoU (1650 tU in 2018). Inpractice, domestic mining will likely lagvs. other two areas above

• Foreign mine ownership split between CNNC’s SinoU and CGN’s URC

• Chinese spot market purchases consistently large in recent years (with a dip in 2018 due to availability). Stockpiling is likely significant but is no longer reported

Chinese overseas uranium mine investments

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Company Country Mine Equity % Start production with China equity

CNUC Niger Azelik 37.2 + 24.8 ZXJOY 2010 but now closed

Niger Imouraren 25+, more pending On hold

Namibia Langer Heinrich 25+, more pending 2014

Namibia Rössing 68.6 2019Kazakhstan Zhalpak 49? 2017?

CGN-URC Namibia Husab 90 2016

Kazakhstan Irkol & Semizbai 49 2008, 2009

Uzbekistan Boztau-skayablack shale 50 Uncertain – no news since

2011

Canada Patterson Lake South 19.99(via equity in Fission Uranium)

2023*

Fuel Cycle

Source: World Nuclear Association* Patterson Lake South has a negative net present value at current spot prices and has seen little-to-no development to date.

Fuel fabrication supply chain

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• All activities conducted by CNNC subsidiaries in Lanzhou, Gansu Province and Hanzhong, Shaanxi Province, respectively

• Initial facilities set up with Russian technology and assistance; later additions in capacity use Chinese indigenous technology; total capacity now estimated at approximately 10M SWU

• In 2019 WNA estimated China’s conversion capacity will top 13,000 tU/yr by 2022, while UxC has noted that if all planned projects are completed successfully, China’s conversion capacity will reach as high as 31,000 tU/year.

• Future plans call for two major nuclear fuel cycle industry parks in the North (Cangzhou) and South of the country, respectively (South pending re-location)

Conversion and Enrichment

• Nearly all activities conducted by CNNC, with capacity concentrated at two sites in Inner Mongolia (Baotou) and Sichuan (Yibin)

• With technologies licensed from France, USA, Russia and Canada, these facilities produce fuel assemblies for the majority of Chinese plants

• CGN-URC has invested in a Kazakh facility at Ulba to produce Taishan fuel assemblies

• Fuel pebbles for the HTGR produced at Baotou• Some VVER fuel assemblies are still imported

Assembly Fabrication

Fuel Cycle

China’s long-term role for nuclear in the energy mix

• In the context of China’s “30/60” carbon pledge announced in Sept. 2020, nuclear power’s role in the Chinese energy mix is set to expand from a minor supporting role to a leading role.

• While the 2030 carbon peak itself is not significantly different from what was previously targeted under China’s nationally determined contribution (NDC) to the Paris Agreement, the 2060 carbon neutrality goal is both hugely ambitious and challenging to achieve.

• Since then, many international research institutes, consulting firms, and NGOs have endeavoured to provide a realistic pathway to carbon neutrality by 2060. Nearly all these hypothesized pathways rely on a substantial acceleration of nuclear power development.

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Looking forward

Source: Tsinghua ISSCD

• Tsinghua University’s Institute of Climate Change and Sustainable Development (ICCSD) published a pivotal 2020 study, partnered with MIT and chaired by China’s #1 climate negotiator Xie Zhenhua

• Cited widely as the foundation for most other proposed pathways to 2060 carbon neutrality

• Predicts a doubling of current Chinese power demand by 2060, forecasts a 6x increase in nuclear capacity

The influence of China’s power sector reform on the nuclear sector’s future

• As Chinese power sector reform deepens and liberalizes, key questions for the sector emerge. These questions don’t necessarily have clear or satisfying answers today, but we can’t afford to not ask them:

– Nuclear power in China is currently granted prioritised dispatch, with the highest annual offtake hours of any generation type. Could power sector reform lead to nuclear’s participation in the spot market and the emergence of a more economic merit order?

– Nuclear power is also granted a privileged offtake tariff rate that is pegged closely to the offtake price of coal in most places. This coal tariff mechanism has recently seen revision and may change again in the future, especially as coal’s role in the power system declines. Will nuclear economics be affected?

– Inland power plants remain stalled, with no specific mention in the 14th Five Year Plan so far. How will their fate be determined?

– Does the ever-expanding Ultra-High Voltage network create more opportunities for nuclear offtake? Less opportunities due to the influx of cheap renewables from distant regions? No real effect at all?

– Will the emergence of a true nation-wide carbon market create new revenue channels for nuclear power?

– Will the liberalization of the power sector create opportunities for independent power producers, especially for less capital-intensive projects such as SMRs?

– And so many more…

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Looking forward

Lantau Group expertise in Asia

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Thank You

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