March 20, 2019

Five nuclear power vendors are competing for a sizeable sale in Saudi Arabia, with Westinghouse facing off against state-owned enterprises (SOEs) from France, South Korea, Russia, and China. A few decades ago, the US was the world leader in nuclear power technology. However, today the US needs to sell nuclear power plants (NPPs) in the export market in order to sustain domestic nuclear industrial capability and have a chance in future nuclear export opportunities.

The US commercial approach to nuclear power (e.g., with private shareholder-owned companies) is in trouble for two primary reasons: first, the US commercial method has difficulty competing with SOE offers; and second, the restrictive US approach to non-proliferation may limit nuclear power exports, compared to other countries with less stringent requirements. New reactor designs from US companies are excellent, but not inherently best-in-class, compared to reactor designs offered by state-owned competitors. These nuclear SOEs work with state-owned electric utilities to develop and build new NPPs, and to develop nuclear supply chains used to support a move into the nuclear power export market.

In contrast to the American commercial market-driven approach to nuclear exports, China and Russia’s nuclear SOEs can offer very favorable prices, use nuclear power as a part of larger government-to-government (G2G) relationships, and usually offer funding for buyer countries through G2G loans with attractive terms. China and Russia have recently expanded the powers of their nuclear enterprises, making the chasm between their efforts and those of the US even more stark. Despite China’s position as a relative newcomer to the nuclear power export scene, it has consolidated its nuclear enterprise through state financing for energy sector infrastructure and its Belt and Road Initiative (BRI) strategy both at home and abroad. In Russia, their vertically-integrated nuclear company, Rosatom, is a key player in domestic and foreign energy policy that aim to preserve and strengthen Russia’s global market share and influence.

Besides building new NPPs domestically, Russia and China are also building or planning to build NPPs abroad. Russia’s ongoing and planned projects include: Bangladesh, Belarus, China, Egypt, Finland, Hungary, India, IranTurkey, and Uzbekistan. China has grand export plans that are built on exports to Pakistan, multiple initiatives in the United Kingdom, and a place on the Saudi Arabia nuclear vendor short list. Additionally, both countries are seeking a nuclear foothold in Europe and frontier markets such as Eurasia, the Arctic, and space.

Chinese investments in developing floating NPPs and nuclear-powered icebreakers are complemented by several planned advanced reactor projects  and  ambitions for a nuclear-powered aircraft carrier. Russian investments are aimed at completing the first floating NPP, expanding its nuclear-powered icebreaker fleet, and growing its presence in global nuclear fuel markets, while also engaging in several advanced reactor projects.

In order to compete on the world stage, the US must develop and implement a national nuclear power strategy in the US that consistently addresses technology innovation (e.g., advanced reactors), the domestic nuclear power industry (e.g., supporting new and existing NPP projects), and nuclear exports. There are few new domestic NPP projects in the US (unlike in Russia, China, and South Korea) and the track record on these projects, including Vogtle cost and schedule issues and the abandonment of V.C. Summer, has not been strong. Moreover, the early retirement of existing NPPs in the US dampens credibility. Furthermore, the absence of project funding such as government-to-government loans or loan guarantee programs has made it nearly impossible to level the playing field with Russia and China. The level of support that might be offered through OPIC—or the new US Development Finance Corporation (USDFC)—falls short of what SOE nuclear vendors can offer.

A recent meeting between President Donald Trump and US commercial nuclear industry players highlighted several messages, including arguments that advanced reactor technology is a way for the US to regain nuclear industrial leadership and the commercial US nuclear power industry needs some government assistance in the world market. Nuclear power needs at least the same level of engagement on export promotion as the natural gas industry, for both economic and geopolitical reasons, and may need even more help.

The US government should take action that is consistent with the long-term political relationships that are key factors in the sale of NPPs (and related goods and services) over a reactor operating life of sixty to eighty years. For example, the US must resolve issues in the domestic market, both to support new NPP projects and to avoid the economic retirement of existing NPPs with decades of useful life remaining.

In addition to resolving the commercial issues, the US needs to rethink its approach to exporting nuclear power technology, fuel, and services, which is linked closely to imposing a US view of nonproliferation.

Increased insistence in the US for a so-called “gold standard” Section 123 agreement with Saudi Arabia, that entirely prohibits enrichment and reprocessing of nuclear fuel, as opposed to a standard 123 agreement that only applies to enrichment and reprocessing with US nuclear technology, may limit success in the nuclear power export market. In contrast, Russia and China do not impose the same requirements on existing and planned sales.

One reason that new nuclear countries are reluctant to give up uranium enrichment is their need for nuclear fuel security, and a view that simply relying on the global market for nuclear fuel adds risk to their very large NPP investment (i.e., no nuclear fuel means no power generation, which nullifies the asset value). Reducing or removing nuclear fuel security concerns in countries looking to buy nuclear power plants will help convince these countries reconsider the need for uranium enrichment capability.  With this in mind, the US should craft a new approach to nuclear fuel security—through long-term nuclear fuel contracts or Low Enriched Uranium (LEU) fuel banks in the target country—in order to mitigate nonproliferation imperatives for purchasing countries. Washington’s stringent nonproliferation conditions should evolve to address changing nuclear fuel security considerations.

Having nuclear power brings countries into a special club, with benefits of nuclear power including energy diversification, energy independence, and additional clean and reliable baseload electricity generation. Foreign nuclear plant buyers may want American nuclear power technology and a deeper relationship with the US, but they are hard-pressed to make this decision when more attractive commercial deals are on offer from SOE nuclear vendors and the countries behind these SOE nuclear vendors do not require purchasing countries to restrict activity in uranium enrichment.

Without US government action to resolve both commercial and nonproliferation issues, the long-term foreign and security policy dividends that accompany nuclear power exports will be ceded to American competitors. In the meantime, China and Russia’s SOEs provide them an advantage in an age of increased great power competition.

For a longer piece on nuclear exports by Melissa Hersh and Edward Kee, please see this NECG commentary.

Melissa S Hersh is principal of Hersh Consulting, LLC, a strategy and risk consulting firm and Nuclear Economics Consulting Group (NECG)
Affiliate. Edward D Kee is the CEO of NECG. You can follow Edward on Twitter @EdwKee