PRIORITIES IN THE CHINESE ENERGY SECTOR
April 3, 2006
uranium stocks rocketed into bubble territory this week, driven by the
Uranium sale agreement between Australia and China. For
example, the leader in the sector, Paladin Resources is now trading at
$5.19, a big move up from the low of $0.05. Incidentally, the Paladin CEO
reported on the weekend that Uranium was so out of favour in the late
nineties that the mining rights to the Namibia deposit were purchased for
a mere fifteen thousand dollars; the company has a current capitalisation
of 2 billion.
China has spent big in
Australia on energy; an agreement to buy liquid natural gas from the
Gorgon project in Western Australia, which was signed last year, was the
biggest commercial deal ever signed and contracts Australia to supply
China with a billion dollars worth of gas a year for the next twenty five
In all, during 2005,
Australian exports to China jumped by more than 20 percent, and with the
72 percent increase in the value of coking coal exports, China displaced
the United States as Australia's number two trading partner.
At 385,000 MW
(megawatts), the current electric grid of China is second only to the
United States. To keep up with demand, China will double its
electric-generating capacity every decade until 2020 while it moves away
from dependence on Coal.
Apart from the
environmental and human costs, simple logistics rule out the use of coal
to meet new energy demands. Half of China's railroad capacity is already
occupied hauling the one billion tons of coal per year used to produce two
thirds of China electricity.
China is building a world
industry and the current wind energy target calls for six
gigawatts of power by 2010 and 30 gigawatts by 2020, a boost that would
give China twice the installed capacity of the current world leader in
China is also planning to
become the world leader in nuclear energy. In the immediate future, China
will choose one reactor design for its next group of nuclear plants so as
to slowly standardize its nuclear operations. Short listed are
Westinghouse Electric Co, France's Areva and a Russian supplier.
The contract will go to
the vendor who agrees to transfer the most technology to China and
"Forbes" reported last week that Westinghouse was best placed to win the
four reactor order, good news for Toshiba, who last month bid $US 5.4
billion for the nuclear engineering business currently owned by BNF.
The Chinese goal is a
sixfold increase in nuclear capacity, up to 40,000 MW by 2020, from 8,700
MW today. The program requires that at least three new reactors come
online each year for the next 14 years. By 2050, China plans to have
180,000 MW of nuclear capacity, equivalent to 150 large nuclear power
In the long run, China
will use the Pebble Bed technology I covered in a
Researchers at the
Institute of Nuclear and New Energy Technology (INET) at Tsinghua
University first fired up the 10-megawatt High-Temperature Reactor in 2000
and the experiment-sized pebble bed reactor has been steadily churning out
power ever since. On three occasions, with observers present, the team
tested the reactor's safety by pulling out the control rods and shutting
down the helium flow. This produced the expected short-lived rise in
temperature before "Doppler broadening" slowed the rate of fission.
The Chinese are already
working on a more advanced reactor, the MHTGR, the "high-temperature
gas-cooled reactor-pebble bed module"(HTR-PM), which is based on the
technology and experience of the HTR-10 and currently in conceptual phase.
High temperatures can support chemistry; for example, water and methane
can be formed into hydrogen and carbon monoxide. The CSIRO are building a
solar tower that will support this chemical reaction and
produce what they call "solar gas".
The HTR-PM demonstration
reactor is planned to be finished by 2012 and the four main elements of
the design philosophy have been defined as: (1) safety, (2)
standardization, (3) economy, and (4) proven technology.
South Africa is working
on a 170-MW Pebble Bed Modular Reactor (PBMR) and
General Atomics, a US company,
have a similar design.
South African reactor is the work of British Nuclear Fuels, the
South African electrical power utility Eskom, and the state owned
Industrial Development Corp of South Africa. This helium-cooled,
graphite-moderated, high-temperature reactor will use uranium pebbles
encased in graphite that weigh 210 grams each and contain 9 grams of
Based on a German
research reactor, the South African PBMR will use a steel pressure vessel
with the control rods in the reflector instead of the core and more
efficient turbine technology.
No substitute for sound public policy
In many power markets
today, nuclear electricity is the cheapest you can buy. Entergy nuclear
plants produced 13% of its revenues but a quarter of its profits last
It costs German utilities
1.5 cents per kW-hour to make nuclear electricity, according to Vincent
Gilles of investment bank UBS, which they sell for three times that amount
once credits from Europe's carbon-trading scheme are included. In
contrast, it costs 3.1-3.8 cents to produce power from natural gas in
Germany and 3.8-4.4 cents to produce it from coal.
Nuclear energy, despite
relatively high capital costs and the need to fund waste disposal and
decommissioning costs is getting cheaper all the time.
With the health and
environmental costs of fossil fuels taken into account nuclear is a good
In America, where there
is no mandatory carbon regulation (and hence no penalty on fossil fuels),
nuclear power has much less of an edge: coal power costs about 2 cents per
kW-hour on average today, gas-fired power costs about 5.7 cents, while
those US nuclear plants who's capital cost has long since been amortised
are producing electricity for 1.7KH cents or so. The Kyoto agreement has a
"carbon trading" framework that provides the incentives that have made
alternate energy viable elsewhere. It is the lack of a carbon tax or other
government incentives for renewable and nuclear technologies that is
inhibiting development in the US. By pursuing a policy of cheap energy
today, both Australia and the US are handing the future of low emission
energy technology to those nations with the foresight to trade higher
prices today for energy security in the future.
A World of Opportunity
Through better design and
new technologies, higher energy prices actually represent a vast business
opportunity in the business of heat recovery and materials recycling.
The U.S. economy is not
even 10% as energy efficient as the laws of physics allow. The energy
wasted by heat loss in U.S. power stations equals the total energy use of
Japan. Materials efficiency is even worse: only about 2% of all the
materials mobilized to serve America are actually made into products that
are still in use six months after sale. As pointing out by
Lovins and others, there are tremendous opportunities for
reducing the amount of resources that go into production processes, the
steps required to run that process, and the amount of pollution generated
and by-products discarded at the end that represent avoidable costs, and
hence, big profits to be won.
By the time oil shortages
bite and energy inefficient economies are undercut by a chronic lack of
competitiveness any clearly necessary changes will need to be made in an
environment of rising costs and shortages so severe they could threaten
the social order.
A clear policy framework
that supports the energy technologies of the future will open up a world
of opportunity where citizens can use their creativity, disciplined by the
scientific process, to respond to the many challenges of peak oil and
climate change with decentralised and appropriate solutions.
Business as usual is the
recipe for disaster.