2 March 2010
Rising demands for power, depleting reserves of oil, gas and coal, international pressure for reduction of carbon emissions, advances in nuclear reactor technology, and more favorable cost projections are driving the increase in nuclear power in Asia. This article will focus especially on nuclear power development in India, China and Vietnam.
In relation to these three countries, we will briefly review the factors that propel decision-makers to select more nuclear power. We will also consider the legal frameworks regulating investment in nuclear power plants (NPPs), the opportunities for foreign investment, associated investment risks and the “who's who” among private investors in NPPs. For China, in particular, nuclear power has a long history and continues to serve as a viable option to polluting coal-fired power stations and the expensive option of gas-fired power.
Over the last few decades, there have been considerable advances in nuclear technology. NPPs have progressed in their stage of development, with Generation IV reactors being the most modern prototype reactors.1
Most early NPPs were either boiling water reactors or pressurized water reactors that use light or heavy water as both a neutron moderator (to slow fissionable neutrons so they are better able to react with the fuel) and as a cooling agent.2 Most NPP fuel used in early and current reactors is uranium-235 (U-235). In a typical nuclear reaction, the U-235 absorbs an additional neutron to become U-236. It then splits into fast-moving lighter elements and neutrons, thereby releasing kinetic energy and gamma radiation. Currently, technological advances have changed with respect to:
- The types of moderators used (no longer just water, but other chemicals as well).
- The types of coolants employed (liquid metals and salts are now also used instead of water).
- The sources of fuel utilized (in addition to U-235, less-enriched uranium is also used, as are plutonium-239 [PL-239] and PL-241).
In some Generation IV reactors, known as fast-breeding reactors (FBRs), the by-products of Generation I and II reactors can be used as sources of fuel, creating a cycle of fuel reserves. FBRs use higher-speed neutrons to bond with elements like plutonium-238 to make PL-239. This process is especially important in a country such as India, which has a reasonable source of uranium, as well as one of the world's largest supplies of thorium.3 An FBR can transform thorium-232 into a lower-grade U-233 for use in typical Generation I and II reactors. The newer reactors are better in terms of safety, efficiency and environment, but they are much more expensive to build.4
Why Nuclear? Why Now?
The general issues mentioned above apply equally to India, China and Vietnam. But each country has its own history and its own reasons to push forward with nuclear power.
In India, nuclear energy currently produces about 4.1 gigawatts (GWs) of energy, which accounts for only 3 percent of its entire energy portfolio of about 138 GW. Considering that demand for power in India is expected to reach 800 GW by 2032,5 the government is under intense pressure to bring more power solutions online. As mentioned above, while India's uranium reserves are reasonable (estimated between 80,000 and 112,000 tons), its supply of thorium is extensive. Nonetheless, thorium-fueled FBRs are expensive to build. As such, the nation’s NPP portfolio comprises a number of NPP variations, including many Generation II reactors, which are less costly to build.
Another driving force for increased nuclear power in India is a result of recent legal measures. India is not a party to the Nuclear Non-proliferation Treaty and had to apply for a waiver from the Nuclear Suppliers Group, which was granted on 6 September 2008, in order to commence trading activities involving NPPs with other countries. With this waiver, a safeguards agreement with the International Atomic Energy Agency (IAEA) completed on 2 February 2009 and a signed treaty with the United States for nuclear cooperation (10 October 2008), India was on its way to ensuring the long-term viability of its nuclear power program.
In both China and Vietnam, the driving forces for developing nuclear power programs are very similar to those in India. Both China and Vietnam will require substantial increases in power over the next few decades, and the fossil fuel reserves in both countries are similarly diminishing. While increasing attention is also being given to renewable sources of energy such as wind and hydroelectric, nuclear power will need to play an increasing role in each country's total power portfolio (TPP).
To meet its expected power demands, China needs to increase its nuclear power generation from 9 GW presently to 72 GW by 2020 (representing 5 percent of TPP), and to 250 GW by 2030 (16 percent of TPP). In order to do this, China will need to build 60 more NPPs in the next 11 years, in addition to the 20 NPPs currently under construction.6
In order for Vietnam to meet its expected power demand, nuclear power will need to comprise 4.4 percent of its TPP by 2025 and 20 percent of TPP by 2050. The Vietnamese government recently authorized the construction of Vietnam's first two commercial NPPs, which will begin in 2014, with commercial operation expected in 2020. The two NPPs (Ninh Thuan 1 & 2) will be of the Generation-III type pressurized water reactors and will be capable of producing 2,000 megawatts (MW) of energy each. Both NPPs will be fully owned by Electricity Vietnam, the state-owned power authority.7
Legal Framework for Investing in Nuclear Power
In India, the primary legislation regulating domestic nuclear power is the Atomic Energy Act of India 1962 (India's AEA). Under India's AEA, only state-owned bodies are permitted to own and operate NPPs in India. While this does allow some room for minority holdings by private investors, there has been an increasing push by both energy experts and private-sector power producers to permit increased private investment.8 However, in order to foster additional private investment, India's AEA would need to be amended. Additional amendments to India's AEA, such as liability limitations, a streamlined regulatory process, tariff clarity, and a transparent process for NPP site allocation, would also need to be included in order to provide the necessary incentives for private investment.9
Other international agreements and treaties have also opened the door to India for commercial nuclear trade, allowing it to purchase fuel, equipment, reactors and spare parts on the world market. Recently, a Civil Nuclear Liability Bill (CNLB) has been proposed, but it is still the subject of much debate within the legislature. The CNLB would cap NPP operator liability at an amount equivalent to US$450 million in the event of an accident.10
There are two international conventions on the limitation of liability for nuclear damage. The Vienna Convention on Civil Liability for Nuclear Damage sets NPP operator liability at a maximum of EUR 700 million. The Paris Convention on Third Party Liability in the Field of Nuclear Energy sets the maximum operator liability at XDR 15 million, with contracting parties permitted to set lower amounts provided they are not less than XDR 5 million.11 India, China and Vietnam are not signatories to either of these conventions.
Vietnam's recently issued legislation governing the nuclear energy sector, Vietnam's Law on Atomic Energy (Vietnam's AEL), took effect on 1 January 2009. Vietnam's AEL is fairly broad in its scope and covers all aspects of nuclear use, including mining of radioactive ore, export and import of radioactive materials and NPP operations. Vietnam's AEL applies to domestic and foreign organizations and to individuals having operations in the atomic energy field in Vietnam, thereby opening the door — at least on paper — for foreign investment in this sector.
Among the important investor-related provisions included in Vietnam's AEL are limitations on damage liability in the event of a nuclear accident involving an NPP (XDR 150 million) and on liability in relation to transport of radioactive materials (XDR 10 million). The statute of limitations is 10 years for environmental damage and 30 years for personal injury. Although Vietnam's AEL stipulates a mandatory insurance requirement, the requisite limits are not specified in this law.12
Unlike Vietnam, China appears to lack a comprehensive atomic energy law that includes liability provisions. Instead, China's nuclear policies and regulations regarding nuclear liability and damages appear to be set out in various legislative acts.13
Of these, the Reply (see footnote 13) specifies that liability of an operator of an NPP shall be limited to RMB 18 million (about US$2.2. million) in total per nuclear accident. If damages exceed that amount, the government is required to provide financial compensation up to RMB 300 million (about US$37.5 million).
The statute of limitations is three years from the date the claimant “should have known” about the damage, death or injury, or 10 years from the occurrence of the nuclear accident. In addition, no insurance or financial security is expressly required of the NPP operator, but the government does provide limited financial compensation as mentioned above.
In terms of foreign investment participation, China’s government announced that three state-owned corporations were approved to own and operate nuclear power plants. Public or private investors are only permitted to have minority shares in new projects.14
Opportunities for Foreign Investment
It has been reported that construction accounts for 75 percent of the profits from nuclear generation.15
The high costs of nuclear power do not make it an attractive investment opportunity for most investors unless there are substantial government incentives and guarantees, such as a long-term power purchase agreement (PPA) with guaranteed fixed returns.16
Although restricted either by law or by practice from investing fully — or even from taking a majority share in the development of NPPs in India, China and Vietnam — opportunities for minority shareholdings are still open to private investors.
With each NPP costing several billions of US dollars, markets like India are valued at between US$100 billion and US$150 billion for NPP construction and supply of equipment and spare parts.17 Opportunities for investors may also be found in mining operations and trading in nuclear fuel.
Additionally, a number of ancillary services support the nuclear power industry. Commercial banking institutions play a major part in the financing of new NPPs. In addition to loans and state funding, governments have increasingly been turning to bond issuances to support NPP development. For example, China Guangdong Nuclear Power Corporation (CGNPC) last year issued five-year bonds worth US$293 million on the interbank market, with proceeds to fund the construction of its six-reactor NPP facility in Guangdong Province (total construction costs estimated at US$10.3 billion). Bank of China and China Development Bank underwrote the bond issuance.18
Investment in NPPs brings with it certain associated risks and costs. Examples of these include construction delays, land compensation issues, nuclear waste disposal, operational safety concerns, decommissioning costs and insurance.
Advances in technology, like the FBR, which utilizes spent fuel rods from earlier-generation NPPs, and alternative coolants such as gas and liquid lead, help to improve safety and nuclear waste conditions. However, most NPPs will still present these issues and concerns for some years to come. Investors, therefore, need to account for and mitigate such risks to the extent possible.
Who is Investing? And Where?
Major players in the construction of NPPs in India, China and Vietnam comprise a relatively small group. India’s principal NPP contractors are GE Hitachi, Areva, Atomstroyexport, Rosatom, Korea Electric Power Corporation and Westinghouse, a subsidiary of Toshiba. In China, most contracting is limited to Areva and Westinghouse, as domestic Chinese companies have already refined the Areva reactor technology and have started mass-producing similar-type reactors.19 Vietnam has just recently selected Russian NPP builder Rosatom over a competing bid by a consortium consisting of Toshiba Corporation, Mitsubishi Heavy Industries and GE Hitachi to build its first two pressurized water reactors.20
In terms of investing in the development and operation of NPPs in India, state-owned giants like National Thermal Power Corporation, National Aluminum Company and Bharat Heavy Electricals Limited continue to dominate among the state investors, while private investment awaits amendment of India's AEA. Companies like Reliance Power, Tata Power, JSW Energy, Jindal Power, and GMR Energy are anxious to enter India's NPP market, as they currently have other investments in-country.21 In China, current minority stakeholders in NPPs include China Light & Power, Daya Bay and Electricité de France, with a 30 percent interest in a joint venture with CGNPC to develop the Taishan NPP in Guangdong Province.22
1. Generation IV Nuclear Reactors, World Nuclear Association (retrieved 29 Jan 2010) <http://www.world-nuclear.org/info/inf77.html>
2. Fast Neutron Reactors, World Nuclear Association (retrieved 11 Feb 2010) <http://www.world-nuclear.org/info/inf98.html>
3. India Energy Inc. - Energy Outlook, Report of KPMG at India Energy Conclave 2008 (26 Nov 2008, Mumbai) at 31.
4. Fast Neutron Reactors; Costs for FBRs range from 2 to 4 times higher than costs for thermal Generation II-type reactors. See Victor Orlov, Nuclear Power of Fast Reactors: A New Start, at 125, available online (last visited 10 Feb 2010) <http://www.nap.edu/openbook.php?record_id=12590&page=125>;
5. See India Energy Inc. - Energy Outlook, supra note 3.
6. Nuclear Power in China (updated on 30 Jan 2010) <http://www.world-nuclear.org/info/inf63.html>
7. Vietnam passes law on nuclear energy (4 Jun 2008) <http://www.world-nuclear-news.org/IT-Vietnam_passes_law_on_nuclear_energy-040...>
8. India’s private sector power push (6 Oct 2009) Asia Elec available in Asia Elec, Asia Power Monitor, v.27.
9. See India Energy Inc. - Energy Outlook, supra note 3, at 32.
10. Sheila Bhatt, Cabinet approves Civil Nuclear Liability Bill (last modified 20 Nov. 2009) <http://news.rediff.com/report/2009/nov/20/cabinet-approves-civil-nuclear-liability-bill>
11. XDR means Special Drawing Rights, the IMF currency, based on a basket of 4 currencies: USD, EUR, JPY and GBP.
12. Vietnam's Law on Atomic Energy No. 18/2008/QH12, effective 1 January 2009.
13. (i) Reply in Respect of Handling Nuclear Third Party Liability to the Ministry of Nuclear Industry, the State Nuclear Safety Bureau and the State Council's Nuclear Power Leading Group, issued by the State Council 29 March 1986 (the Reply); (ii) PRC Regulation on the Supervision and Management of Safety for Civil Nuclear Operations, issued by the State Council, 29 October 1986; (iii) Provisional Measures on Administration of Road Transportation of Spent Nuclear Fuel for Nuclear Reactors, issued by PRC National Defense Science and Technology Industry Commission, Ministry of Public Security , Ministry of Communications, and Ministry of Health, 18 June 2003; and (iv) PRC Prevention and Treatment of Radioactive Pollution Law, effective 1 January 2003.
14. China National Nuclear Corporation, China Guangdong Nuclear Power Corporation, and China Power Investment Corporation.
15. Chris Sholto Heaton, How to Generate Profits from Nuclear Power, Moneyweek, 30 Nov 2007.
16. Fabien Roques, William Nutall and David Newbery, Using Probabilistic Analysis to Value Power Generation Investments under Uncertainty (Jul 2006), Univ. of Cambridge, <http://www.electricpolicy.org.uk/documents/upload/poste13.pdf#page=31>
17. BHEL, NTPC look at nuclear option (19 May 2009), available in Asia Elec, Asia Power Monitor, v.7.
18. China Guangdong Nuclear Plans bond issue to fund Yangjiang (9 Jun 2009) available in Asia Elec, Asia Power Monitor, v.10.
19. Nuclear Power in China (updated 9 Feb 2010) at 2-3, <http://www.world-nuclear.org/info/inf63.html>; see also, China to set even higher nuclear targets (4 June 2009) <http://www.vaec.gov.vn/news/print_baiviet.php?EV=0&idbv=2195&iddomain=18>.
20. Japan Loses Vietnamese nuclear project to Russia, Nikkei Says, (10 Feb 2010) Intellasia/Bloomberg <http://www.bloomberg.com/apps/news?pid=20601072&sid=aiNkaChoLAPQ>.
21. BHEL , NALCO expand nuclear horizons (29 Sep 2009) available in Asia Elec, Asia Power Monitor, v.26.
22. Nuclear Power in China, supra note 19 at 8.