This Is How China Builds So Much Nuclear Power

In the US right now, there is a lot of talk about a so-called "nuclear revival." But it remains to be seen whether we'll see a meaningful uptick in actual power generation, from either new reactors, or old reactors getting a restart. Meanwhile, in China, nuclear construction is full steam ahead. In the last decade, China has built 37 nuclear reactors, and several more are coming down the pipe. So what does it take to build nuclear at scale? On this episode, we speak to David Fishman, a China-based energy analyst at The Lantau Group. He walks us through all the elements of the country's nuclear success, from financing to manufacturing to its domestic power markets. We also discuss what, if any, lessons could be applied elsewhere. Previously: What’s Next for Uranium After the Big Price SurgeOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 1:24Speaker 02

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• 1:41Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 1:46Tracy Alloway?

  And I'm Tracy Alloway.

• 1:47Joe Weisenthal?

  Tracy, you know, we've been talking a lot about the US energy system for obvious reasons. At least when it comes to electricity, I don't know about you, I kind of feel like the more we talk about it, the less I understand it.

• 1:57Tracy Alloway?

  Yes, yes, absolutely. I think there are a couple of problems here. So like even beyond the actual different technologies for generating power, there's the patchwork of like how different grids work in different states. There's the different regulations, the different like interoperability and all of that. And then even if we look like beyond the US, it gets, I guess, even more different.

• 2:22Joe Weisenthal?

  Yes, well, I sort of wonder, maybe we can learn something about the US by a little compare and contrast, right? So if we look at the US and we still don't totally get how it works, maybe, I don't know, just a thought, maybe we'll learn something about the US by looking at some different system and then we have something to compare it to. It might be a way in by looking at the outside world.

• 2:44Tracy Alloway?

  I'm a big fan of doing this, by the way, just to identify like different choke points in a particular domestic process. If you think that the US can't do something for whatever unidentifiable reason, or I don't know, cultural like holdback, but if you look at a different country and they're doing it at scale very, very quickly, then I think you can learn a lot about yourself.

• 3:08Joe Weisenthal?

  Well, that's exactly right. And so one of the things again that comes up from time to time here in our conversations is nuclear. And this is just one example of a source of power that may or may not be important in our future. But according to, and I'm looking at a story from The Economist, over the past decade, China has added 37 nuclear reactors, according to the International Atomic Energy Agency. I don't know, maybe we've added like two. I forget how many there are at that Georgia plant, a couple more maybe restarted. But, you know, we talk all the time about nuclear and how hard it is and how hard the financing is and the labor force and the learning laws and all we forgot to, you know, we forgot how to build them for various reasons. But that's not, and

• 3:51Joe Weisenthal?

  it's so expensive and there's all these cost overruns every time. But apparently that is not the case everywhere and that there are other parts of the world, particularly China, where they just keep building at scale. And maybe we could learn a little bit of how they do that and how they finance it and how they avoid forgetting how to build them.

• 4:08Tracy Alloway?

  I think this is so interesting, this particular approach, the compare and contrast. And it is absolutely true. I think the US has the most nuclear reactors out there, like almost 100 or something like that. But it took us decades and decades to build them. And as you rightly point out, we haven't built many new ones that recently. Meanwhile, China is adding more and more and they make it look easy. I mean, I guess. They are just like giant things to boil water, but you know, China really makes it look easy. So what can we learn from China?

• 4:38Joe Weisenthal?

  We really do have the perfect guest. By the way, we've had this guest on in the past. We talked to him about something completely different.

• 4:44Tracy Alloway?

  Yes, this was during the depths of the COVID crisis.

• 4:48Joe Weisenthal?

  Yeah.

• 4:48Tracy Alloway?

  And we were talking to this person, he was based out in Shanghai and we're talking basically about how they were getting food into apartment buildings and staying alive during that time.

• 4:58Joe Weisenthal?

  Yeah, so that was an interesting sort of logistical story in its own right. If you're under complete lockdown in a Shanghai apartment building, how do you actually get food? And anyway, I'm thrilled because now we're recording this December 17th, 2024. We are talking to him in completely different times.

• 5:16Tracy Alloway?

  He's been freed from lockdown.

• 5:17Joe Weisenthal?

  He is now here in studio with us, so we are going to be speaking with David Fishman, Senior Manager at the Lantau Group. He's based in China typically where he mostly focuses on the Chinese energy system. So literally the perfect guest and a repeat guest. So David, thank you for coming on Odd Lots. Welcome to New York City. Welcome back.

• 5:37Speaker 05

  Thank you for having me.

• 5:38Joe Weisenthal?

  What do you do? The only other time we talked to you, the only thing we knew about you is that you were figuring out how to get food into your apartment. What do you do now when that's no longer the pressing issue?

• 5:49Speaker 05

  Yeah, sure. So I work at a company called The Lantau Group. We are an economic consultancy. We're doing power and gas consulting across APAC. And so I'm focused on China. I'm in the China office. We're doing the business of electricity. So for me, that means either somebody who wants to build an electricity generation asset, wants to sell one, wants to sell a portfolio of assets, wants to invest in one, maybe through a fund or as some other type of investment product. And then on the, what we'd call our downstream, who uses the electricity, right? Your major multinationals, your factories, anybody who uses electricity as an input to produce things.

• 6:27Speaker 05

  So we're working in the business of electricity, trying to make buying and selling electricity more economic for everybody involved.

• 6:35Tracy Alloway?

  Well, I'm just going to dive into the nuclear aspect of this then. You know, Joe gave us some contours around how much China is currently building. When did China decide that it was interested in nuclear? And what was the sort of like thought process, the strategy about how nuclear would fit into everything else, including the coal power that China is famous for, for using?

• 6:57Speaker 05

  Yeah, I mean, the the history of the Chinese civil nuclear power industry goes back to stems back to the 80s. So looking at, you know, the mid to late 80s is when China was signing agreements to bring in its first nuclear reactor technology. At the time, it was there are two different paths they were pursuing. They signed an agreement with Framatome, a French company, to bring over one reactor, and they developed a domestic reactor with, at the time, the Soviet Union to have a domestic technology tree as well. So in the 80s, China was actually experiencing some pretty rapid economic growth, especially in the late 80s, and looking to expand its power supply rapidly. And at the time, it was quite tight. And so nuclear was seen as a potential way to to expand the power

• 7:42Speaker 05

  supply and get into power generation for what was at the time, something very new for China.

• 7:48Joe Weisenthal?

  What do you so I mentioned, literally, from just reading the first paragraph of a paywalled economist story, that number of about 37 new nuclear reactors. I saw that one, too. Yeah, I just like I just Google, how many new reactors are being built in China? Scroll down until I find something in the Google search. This is how the research is done, folks. But why don't you, in your words, give us a sense of the size and scale of Chinese civil nuclear generation, and where it's going, and then sort of like, the role it generally plays in the overall portfolio there?

• 8:21Speaker 05

  Yeah, sure.

• 8:21Joe Weisenthal?

  How would you describe it?

• 8:22Speaker 05

  Yeah, sure. So so nuclear in China has the interesting status of being both relatively large and still somehow small. Large in the sense that it's one of the largest operating fleets in the world, right? You've got, you know, 50, almost 60 reactors operating. We're talking about nearly 60 gigawatts of generation capacity. But then, in the context of China's entire generation fleet, right, they've got well over 1,000 gigawatts of coal, and then many more thousands of gigawatts of wind and solar. So it's both large in the context of the world, but also small. And that's the case for a lot of things in China. The thing that can be large in China can also be small.

• 8:58Joe Weisenthal?

  And what's the ambition for, you know, looking out, you know, in a five year plan? I don't know what how whether they do that for energy, too. Where is nuclear potentially? How much could nuclear be a thing? What's the size and scale of the ambition?

• 9:11Speaker 05

  Yeah, sure. So, long term, I mean, it depends on how your energy planners and your economic planners envision the long-term makeup of the grid. What type of power are we using in 2050? Is it going to be a little bit, or a medium amount, or a lot of nuclear? So it's scenarios, right? And China has scenarios too, for a high end, a low end. So the recent scenarios that I've seen, originally, it was saying no less than 300 gigawatts, 250, 300 gigawatts. So 250 or 300 reactors, right? 250 units. So, United States has just about 100 right now. So if they got to that scenario, it would be about two and a half times what the US has right now.

• 9:51Tracy Alloway?

  So what's the process by which a new nuclear reactor gets built in China? And how much does it differ from what goes on in the US?

• 10:00Speaker 05

  Sure. Well, the steps of the process are actually very similar. This is, these are international best practices for how you build these types of infrastructure. So you have to choose a site, you're going through a siting process, an environmental impact report. Maybe you've got to make sure the local sea life is not going to be affected by warm water being discharged. There's no endangered species nearby, all those different aspects. So you choose your site, that takes a few years. You have consultation period, there's a period for the public to maybe express their dissatisfaction. This happens in China too. And when the site is finally selected, then you start pre-construction. You can level the site, you can connect communications, utilities, you can do all your pre-groundwork.

• 10:42Speaker 05

  And then we're waiting for a really key milestone called FCD, that's first concrete date. And that's when the first barrel of safety-related concrete is poured at the site. And so that would be the beginning of your construction of your containment building. And so from FCD to your full construction period, you do civil construction, you do installation, you have commissioning. Maybe you encounter some issues during commissioning, you're troubleshooting, right? And eventually, you fully connect, you connect it, you load your fuel. You have your first criticality, the first time that fission starts in the reactor. Then you connect it to the grid, and then you get up to 100% power, and you've got a nuclear power plant. If you do it quick, you're looking at 10 to 12 years. If you do it not so quick, you're looking a lot more than that.

• 11:26Joe Weisenthal?

  So it takes a long time in China, too. So, you know, we look at US construction builders, like, oh, can we? It's a long process anywhere you look. I want to ask about the financing. So if there's a new, who's paying for this? And also, how are they selling this energy? Because one thing I get the impression of is that, setting aside the cost of building a new nuclear reactor, which is an expensive, time-consuming process, the electricity market structure also seems to matter a lot, because you need a certain amount of guaranteed offtake, you need a certain amount of price stability. If the price drops to zero for a long time, because there's, it's very sunny and windy in that area, and suddenly

• 12:07Joe Weisenthal?

  you're, that's screwing with the economics of it. And so, market structure and financing are both important. Talk to us about how that works in China versus here.

• 12:16Speaker 05

  Right, sure. So, the builders, right? The companies that are constructing and eventually owning the assets are all state-owned enterprises. So you've got these great big SOEs, their job is to own and operate nuclear power plants. And so, when they go out to secure financing, of course, they're securing financing from state-owned banks as well. They're going to be getting very preferential loan treatment, right? Very low percentage rates, maybe 2%, 1.5%, things like that. For a huge infrastructure like that, we're talking billions of dollars.

• 12:43Joe Weisenthal?

  There's the actual rate, not the spread. Okay, keep going.

• 12:46Speaker 05

  So, very, very low rates, because, again, they have a mandate to build. This is state banks, state infrastructure, and state builders. They need to build these things. And then, when they're going out to sell power, right now, they're given a guaranteed on-grid rate. So, the grid company and the power regulators say, "When you complete your plant and you start selling power, we will make sure you receive this much for every kilowatt hour of power that you send into the grid." Long-term, they want to marketize it. They want to have that exposed to the vagaries of the markets, the same way that you would see maybe in the United States or Western Europe. And that will be an adjustment for China's nuclear industry. Historically, they have only operated on this kind of fixed feed-in rate.

• 13:28Tracy Alloway?

  So I mean, that's a pretty big comparative advantage if you're getting subsidized financing from a state-owned enterprise or something like that. Plus, at the moment, you have that guaranteed offtake, even though they might want to move to a market-based system before. It also strikes me that there are a few other potential comparative advantages, like lots of ready labor, lots of manufacturing capacity presumably that's able to make the stuff you need for these things. Walk us through like, all the different advantages that China has in this process.

• 14:01Speaker 05

  Yeah, sure. So if you maybe you've seen before or not, if you look at one of those like stacked bar charts and it compares all the cost components of, you know, building one of these things in China versus Europe versus the United States, it's not like you'd point to any single component of the stacked bar and say, ah, that's it. That's the key. That's why they're so cheap. Every single component is cheaper, right? You've got your cost of capital is lower. You've got your construction timeline is so tightly managed, right?

• 14:27Tracy Alloway?

  So you're saving on interest costs as well.

• 14:29Speaker 05

  Exactly. And the sooner you can connect to the grid and start selling power, that's when you start making your money back, right? So every day that you go over your construction schedule, it's a hun- we say in the US about a million dollars of missed power sales. And then also about a million dollars of interest payments. So you've got this $2 million spread every day over your construction schedule that was originally planned. Like, that's just mind-boggling. Then we look at the production capacity, right? China's incredible industrial production capacity. We're talking about these heavy forged components that maybe only a couple of companies in the whole world can make. Things like the reactor pressure vessel, the steam generators, the pressurizers, the primary piping, the reactor coolant pump, all these things. And you know, there's like three companies in the

• 15:12Speaker 05

  world that can make these. And now at this point, several of them are in China. And when they need to prototype, when they need to iterate, when they need to troubleshoot something, it's all in one industrial cluster. It's all a company and its subsidiaries or its sister partner companies, right? And so they can quickly trouble through things really quickly. So that's going to be your industrial production component very strong. You've got, you know, people work longer hours. They'll work through weekends, they'll work through Holidays, China's really, really competent at building very large construction, very large infrastructure, right? It could be a dam or a bridge or a highway or a high-speed railway or a nuclear reactor. When it comes to the construction know-how of being able to do it

• 15:53Speaker 05

  on time and like an oiled machine, they're winning there, too. And then we talk about the actual way they're building the nuclear power plants. There's something really interesting here. This was actually pioneered by Westinghouse out of the United States, something called modularized construction, where onsite or offsite, you're prefabricating large portions of the reactor, portions of the containment building, and so you can work on individual components at the same time, bring it to site, and then you get the largest crane in the world that lifts this massive, massive preassembled component into place. When you're able to work like that, you can cut down the construction schedule even more. Interestingly, Westinghouse pioneered that, but they haven't been really successful in implementing it

• 16:36Speaker 05

  in their recent builds. China, on the other hand, learned from Westinghouse and has been very successful with this modularized construction approach.

• 16:44Joe Weisenthal?

  Can you talk more about that? Because it's very intuitive, right? The idea that the more you could build at the factory and the less you have to build onsite makes it easy in a lot of the, so far it seems like mostly hype about small modular reactors in the US is sort of on this idea, like why don't start every project from scratch. Why is it apparently hard, even though in theory that seems very obvious? Because I don't know if there actually are any modular reactors in the US despite the sort of intuitive appeal.

• 17:15Speaker 05

  So I think I gotta, I gotta clarify here. There's modularized construction and there's small modular reactors.

• 17:20Joe Weisenthal?

  Okay.

• 17:21Speaker 05

  So SMRs or small modular reactors, they refer to a situation where the entire reactor is encased in a single unit.

• 17:27Joe Weisenthal?

  Okay, got it.

• 17:28Speaker 05

  Yeah.

• 17:28Joe Weisenthal?

  But it's still this idea that a lot of the fabrication process happens not at the site itself. Again, something that feels highly intuitive and apparently easier said than done.

• 17:39Speaker 05

  Well, so my understanding from the Westinghouse design approach, when they used this for the first time in designing the AP1000 technology that we built here in Vogtle. In the United States is one of the major barriers. Well, there's several. There's always going to be regulatory barriers, right? It's a new way of doing things. Anytime it's a new way of doing things, the regulator is going to want you to jump through a million hoops to try to clarify and justify that what you're doing is defensible and safe. So you've got that one, of course. But then the actual logistics of lifting these massive, massive, we're talking thousands of tons of prefab components, they actually had to design and then specially contract the world's largest heavy lift crane, Westinghouse did, just to be able to lift the first one.

• 18:24Speaker 05

  They worked with an American company to design, to custom design this giant fixed base ring crane that requires other cranes to build it. Then you have this giant, giant crane that's in place and it swings around. It usually works for two different units to build two reactors at the same site. Interestingly, they weren't able to use this giant, giant crane in China because of a design miscommunication. The first AP1000s that Westinghouse tried to build in China, they didn't leave space on the site to put the giant crane. So in the end, they had to use a very, very large roller crane instead, which just about did the job, but it forced them to change the way they built it. China has learned from that, though. So the newest, you know, Hualong 1 reactors that China builds, they use a giant ring crane.

• 19:09Speaker 05

  I believe they use a Zoom Lion, it's a Chinese brand, has designed one of these, built one of these massive ultra heavy lift cranes as well. And so now that's, you know, they're reaping those benefits.

• 19:34Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

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• 21:05Tracy Alloway?

  I have a slightly random question, which is building nuclear reactors. How customized do the components that go into these actually have to be? Like, how much does the design actually vary site to site?

• 21:19Speaker 05

  Well, if they are the same series of reactors, right? You could say the AP1000, right? That's a base unit. Now, the ones that are built in Vogel and the ones that were being built at Summer in South Carolina before that was cancelled, those were probably a little bit different, right? But largely part of the same series. The ones that were built in China were built on that same platform, but they would have been modified a little bit for the Chinese context. They called them Chinese AP1000s, CAP1000s. But you could say they're substantially the same reactor with small modifications. When we start talking about different series, though, if we say like the French design versus the US design versus what's being sold now in Korea or something like that, you'll see more similarities to their predecessors,

• 22:03Speaker 05

  that they came up through different generations of technology. So like Korea, you'd see similarities to the old GE Hitachi reactors, because that's where they got their technology originally. Then you'd see to, say, a modern AP1000. These are different tech trees from different competitors.

• 22:19Joe Weisenthal?

  So if I'm a guy on Twitter, listening to this, and I am a guy on Twitter, except I'm talking in this, but I'm just a guy on Twitter, and I'm hearing you talk about, okay, they get preferential lending from the state-owned bank, the company is state-owned, probably the crane company is state-owned, there's probably a few other state-owned businesses. And I think, yeah, okay, you know, they're really good at building reactors fast, but there must be some sort of accumulated debts and inefficiencies that come with all of these, all of these entities that have something other than a profit motive, and, you know, probably, you know, I don't know, then my intuition, or my response to you, or my dunk

• 23:00Joe Weisenthal?

  on you, is that there's going to be all these accumulated losses that ripple through the systems on account of the fact that it's SOE, working with SOE after SOE. Do we have any sense of how economic these projects actually are? Because if these were private companies, you say, oh, they're either making money, or if these were sort of strictly for-profit listed companies, you say, well, they're making money, they're not making money, whatever. How do we think about the actual economics of whether this is good investment? Because it's cool, yeah, you know, China's building dozens of reactors. How do we know these are good economic investments?

• 23:36Speaker 05

  Well, unless I can crack open, you know, China National Nuclear Corporation's books, I can't tell you for sure if these are good investments, right? But when they build them at that pace, when you look at it from the outside, and you say, all the conditions are in place to have surely built this according to the budget you set for yourself, right? You declared that you would build it with a certain budget and a certain timeframe.

• 23:56Joe Weisenthal?

  Yeah, talk about the budget and time.

• 23:57Speaker 05

  Right? So you're looking at, you know, your construction period of five years, your preconstruction, and your commissioning, you add another five years or so, right? But then, once they build it, they're saying, you know, we can build a single gigawatt unit reactor for $5 billion, four and a half billion, $5 billion. You look at numbers out of the US, and they're saying, we're going to build, Vogel's cost was two units for $28 billion, or something like that. You do a little bit of napkin math, and you say, that reactor can't possibly make back how much money it costs to build in its operating lifetime, or maybe it will just... Just about get there after forty years. And that's assuming that this plant operates in the spot markets really, really well and sells power so efficiently and never gets curtailed and and never has issues like that.

• 24:40Speaker 05

  Meanwhile, your napkin math in China is saying, well, they're going to sell power at this rate for the next forty, maybe sixty years. Maybe they'll do double life extension, maybe eighty years. And, you know, so many kilowatt hours of power times so much per kilowatt hour. Yeah, it looks like these things should be reasonably profitable. And keep in mind, the profit motive of Chinese SOEs is different, right? They're expected to try to be profitable, so they have cash flow to do things and, you know, be functional. But if they have to take a hit, sometimes they will. They can be the lubricant in the system that causes the inefficiencies to be okay, because you've got, you know, a major SOE that was okay, losing half a billion dollars last year. They'll make it back later. It's okay. The system didn't fall apart. They were the lubricant.

• 25:25Tracy Alloway?

  So one way we could potentially judge the success of Chinese nuclear reactors is you could look at whether or not they are significantly changing the energy mix. And there was a story out this week saying that China's domestic coal production had reached an all time high. And granted, that's production. That's not necessarily coal use. But I don't know, it doesn't seem like there's been a big impact just yet. Why is that?

• 25:51Speaker 05

  And yeah, and that's right. I saw that yesterday, too. I'm bummed about that because I'm on record saying back in December twenty twenty-three that I thought twenty twenty-four would be the peak year. And I thought structurally, we were in place to be able to peak coal consumption in twenty twenty-four. And I think we're going to end up up one, one point five percent year on year, something like that, which for China is a huge amount of coal because they consume so much coal. But it's it's really close, which of course means if we're up year on year and last year was the highest year ever, then this year is the highest best year ever. And so what are we looking at, though? We're looking at a power sector that is still growing consumption every year by seven percent year on year, six or seven percent year on year, compared to the US where a good year is maybe like one percent or half a percent year on

• 26:36Speaker 05

  year. And you talk about data center. Demand growth is gonna maybe rise that and everybody's freaking out. How are we gonna meet this new consumption need? China's been growing like that, seven percent, eight percent. In the past, it was even higher for decades now. So it to be able to peak coal consumption, we have to get to a single year where all of the incremental consumption growth is met by incremental generation from clean assets, right? From wind and water and solar and nuclear. If we can't manage to do that in one year, where all the incremental growth is covered by new incremental clean generation, thermal generation has to go up. And so that's still where we are. We're we're real close. If it only grew by 1.5% this year, that means that 7% of China's entire consumption mix

• 27:20Speaker 05

  was almost totally covered by growth year on year of wind and water and solar and nuclear. But it wasn't quite there. And so that's where we stand at 2024. I'm I'm gonna be made a liar of that statement I made at the end of last year, where I thought coal consumption would peak this year.

• 27:35Joe Weisenthal?

  Since you mentioned it, data centers is obviously a huge part of the story of the return of load growth in the US. I mean, there's obviously just the general modernization and country getting wealthier. But tell us about the data center story in China as you see it and its impact on the grid.

• 27:50Speaker 05

  Yeah, it's it's, of course, going to be another growth driver. The major difference here is that when China says, oh, we've got data centers coming in. So instead of 6.5% growth, it's gonna be 7.5% growth, right? It's just what's a percentage point among friends, right? Whereas the United States going from half a percentage point to 1.5 or 2% is very different from how we've had to grow in the past. So China's, I think, approaching this with much more sanguinity, maybe. They're just saying, yeah, it's gonna be a driver of growth. Let's put them in some of our parts of the country that have low load and great renewable resources. We're we're gonna put them in Inner Mongolia is where we're gonna put them. We're gonna put growth demand centers in Inner Mongolia. They don't need to be close to the load centers.

• 28:32Joe Weisenthal?

  Chinese, Virginia, Chinese is Inner Mongolia.

• 28:34Speaker 05

  Yeah, it's it's sparsely populated. It's got a lot of great energy resources. The wind blows and the sun shines all day long, and there's no load out there. So it wouldn't have made so much sense maybe to cite, you know, your heavy, energy-intensive industrial manufacturing. So far from the demand centers, so far from the coasts where you could get it to logistics. Oh, they put some stuff out there, but it wasn't so intuitive to put energy intensive industry out there. But data centers, oh, that's great, right? They don't need to be close to markets per se. You just need to be them close to the affordable energy. So it's looking like Inner Mongolia, places like that will be a great match for China's data center growth.

• 29:11Tracy Alloway?

  So one of the things that's been happening in the US, speaking of data centers, is a lot of the big tech companies have been signing off take agreements with energy producers and they've been pushing them towards more renewable energy. So they say, we want clean energy to power these things and you make it for us and we'll take it. Do you see a similar dynamic taking place in China? Or do people not care as much about, you know, the ultimate cleanliness of their energy for data centers?

• 29:39Speaker 05

  Yeah, that's a major driver of how the power sector offers power, right? Your customers demand a certain type of power. You should be able to meet their needs. Right now, in China, you'd split, or anywhere in the world, not just in China, you'd split green power consumption on the end user end into voluntary and mandatory. So mandatory says, the government says you have to consume a certain amount of electricity that is green. We call it a renewable portfolio standard or an RPS, right? There's RPS in US states, not all of them, but some of them, and there's RPS in China. So from that perspective, you could say the government mandates that you consume a certain amount of renewable energy to meet the quota. Now, right now, that applies to utilities in China, but it doesn't yet apply to end users.

• 30:23Speaker 05

  So your aluminum smelter doesn't have that many yet, but that's the next stage of RPS that's being added right now. Data centers, I think, need to be, it's quite high. I think it's 80% renewable to build a new data center in China. You're going to need to have aluminum and steel and all these heavy, energy intensive industries need to consume renewables. That's your mandatory consumption that's RPS driven. And then you've got your voluntary consumption. So voluntary consumption, you know, corporate social responsibility initiatives, ESG, right? Companies say, we want to go green. We want to put it in our CSR report that we consumed X amount of renewables last year. We did this on a voluntary basis. We joined RE100. We joined the Science-Based Targets Initiative,

• 31:04Speaker 05

  and we want to claim that we are green. Yet, that's your consumer tech brands, that's your luxury, fashion, and increasing a lot of European brands are very aggressive on their renewable energy consumption, including in China. So if you're producing in China and selling to the world, you want to be able to say, "Our production in China was also green." So that's voluntary consumption of green power, but you demand your power retailer to provide you with green electricity, and they'll give you a quote for green electricity.

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• 33:31Joe Weisenthal?

  We started on the nuclear side. We talked coal, but then we're all, you know, there's all these charts that are, you know, great about all this solar being installed. Is the economics of that roughly the same in the sense that it's probably an SOE getting money from an SOE bank? And talk to us about who's funding that and where does it make sense? Like, why in some places it's so is solar going to be or solar wind part of the answer versus, say, nuclear?

• 33:59Speaker 05

  Right. So when it comes to wind and solar, these are being built differently from nuclear, right? They're not nearly as capital intensive. Also, they can be smaller. They can be more distributed. And so when you look at Chinese wind and solar, of course, you still see SOEs playing a big role, but there are as well IPPs, independent power producers or just non SOEs, right? As well as foreign players. So you as a, you know, a foreign investor who, you know, like BlackRock can come into China and and build a power plant if they want to, a wind or a solar farm, no problem. And so anyone can participate in that space if they do their financial analysis and they see the way to attractive project economics. So for Chinese builders, they'll borrow from Chinese banks, as will Chinese independent borrowers. Then

• 34:43Speaker 05

  international players, they might borrow from international banks. They might try to borrow from Chinese banks. They can do that as well. They will get, you know, market competitive rates. This is a different kind of building compared to nuclear where it's instead of it's like a national strategic priority to build a rooftop solar facility. No, that's much more of a commercial market operation. However, there are some projects in China that are national strategic priority. We talk about those huge desert bases, you know, hundreds of megawatts, gigawatts, hundreds of gigawatts in the middle of the Gobi Desert, coal plants, plus a wind farm, plus a solar farm, plus a huge battery array, all financed by a giant Chinese, built by a Chinese SOE. That's the kind of stuff that that kind of looks more like a nuclear power plant than the way that they finance and process that. But, you know,

• 35:28Speaker 05

  rooftop solar facility in eastern China? No, that's very much just a commercial play. They, if it makes money, if it makes sense, they'll build it.

• 35:35Tracy Alloway?

  So when we talk about China's energy landscape or its energy mix, I mean, a lot of what we're talking about, we're pulling in numbers from the Chinese government, right? Like domestic production numbers, domestic usage numbers. And whenever you do that, there's always a certain element of uncertainty or a question mark over them. And there are some people who, even if you were to say that China's coal production was finally falling, which it isn't, as you know, people wouldn't necessarily believe it. They'd be like, oh, well, China wants you to think that. So I guess my question is, like, how much should we believe some of these stats?

• 36:12Speaker 05

  Yeah. And this is going to be always very subjective about how much you want to believe, or how much you you think is worthwhile believing. My my take that I usually go to is like, look, at the top levels, you've got your National Bureau of Statistics, you've got these, you know, national level entities whose their job mandate is to report statistics as faithfully and as honestly as they can. All right, fine. You know what? That's their job mandate. I have no latitude to say I think they're doing their job dishonestly or something like that. But I do believe there are many kind of perverse incentives throughout the structure of the reporting economy in China that would create opportunity for misreporting information. When you tie, you know, the county governor's promotion,

• 36:55Speaker 05

  or lack thereof, to his ability to grow GDP in that province or in that county, you're creating the incentive for him to cook the data. When you're creating economic recovery and you announce to, and this happened, this was a real story, when you announce to a a certain city in 2022 that you're going to be evaluating how quickly they've recovered from COVID conditions by seeing how quickly their factories get back up to regular production, and you know that they're measuring that by seeing how much electricity they consume? Well, all of a sudden, you have an incentive.

• 37:26Tracy Alloway?

  Everyone starts plugging stuff in.

• 37:27Speaker 05

  Right? So if you can say that people are trying to do their jobs honestly, and then you also have people that have been given perverse incentives to to misreport their data. I think that's where a lot of the uncertainty comes from.

• 37:38Joe Weisenthal?

  I mean, this is the core problem of central plan. I mean, this is it in a nutshell. Obviously, the most egregious examples of this were during the Great Leap Forward and all of the ways that either they, you know, the steel production that was melting down, literally anything with steel and destroying the economy. In 2024, what are some of the techniques used to avoid sort of egregious juke of the stats? So that, yeah, someone's promotion who is tied to electricity consumption can't be sort of egregiously abused like that.

• 38:13Speaker 05

  Yeah, well, I mean, famously or perhaps infamously. So I think it ended up, it came out of like a WikiLeaks, something that the former premier Li Keqiang said he didn't look at GDP data from certain provinces.

• 38:25Joe Weisenthal?

  And now that's on the terminal, the Li Keqiang Index.

• 38:27Speaker 05

  Yeah, the Li Keqiang Index. And he said, I prefer to look at, I think it was rail cargo and electricity consumption. And there was a third item too, right? He said that these items, you know, the people in charge of reporting them, there's, you know, my assumption is that his logic was there's less incentives to misreport these. So that these are the ones I want to look at. And you can maybe come up with your own version of the modern day Li Keqiang Index. I think electricity consumption is still fine. But maybe there's some other numbers that you say, look, this is all very centralized reporting. The reason I like electricity because it's all state grid, right? Those numbers almost all come from state grid. And state grid is just a single unified entity. You're not gathering data points from many different companies. Maybe other stuff like we talk about cargo, right?

• 39:11Speaker 05

  Again, China railways, you have one centralized company that would be able to report that information. So if you want to, you know, fashion your modern Li Keqiang Index, maybe try those types of indices.

• 39:21Joe Weisenthal?

  So one other element, obviously, of the Chinese energy demand. We've talked a lot about the grid, obviously, and the power of the grid. Then there is the whole world of automobiles, which up until very recently was this totally separate part of the energy system. But now it's around the world, but in particular China. And we talk about Chinese EVs all the time being plugged into the grid. How much do we see the electrification of the Chinese automobile fleet? Like, A, how electrified is it right now? And B, is it moving the dial on oil consumption? Because this is a pretty big question in the West, right? Like, at some point, will EVs become big enough where meaningfully starts to reduce our oil demand?

• 40:04Joe Weisenthal?

  And even in countries like Norway, I think, like, it's still barely moving the dial despite massive electrification. What are we seeing in China right now on that front?

• 40:12Speaker 05

  Yeah, I mean, in the major cities, you say Shenzhen, Shanghai, Beijing, places like this, the EV penetration rate is noticeably high. And you'll see that they're easily identifiable. They have green license plates instead of the regular blue license plates. So you can just kind of look at them on the street. It's very expensive to get a license plate in Shanghai. Just the license plate itself is expensive, but EVs for a long time were free. Like, the license plate was free. So that was a great perk for them to pursue those. And yeah, there, I think it was new vehicle sales in Shanghai, for example, was 50% electric vehicles in the last reporting session. And it's really noticeable when you stand on a street corner in Shanghai. And I guess it's noticeable by the lack of the noise.

• 40:55Joe Weisenthal?

  I was just gonna say, someone, I heard that everyone goes to Shanghai and says it's really quiet now.

• 40:59Speaker 05

  That's, you know, look, I'm back in New York right now for the first time in a year, and I stand on a street corner. It's so loud. And I hadn't really noted the lack of the noise, because I'm just used to it now. And I hear the roar of petroleum-based engines all around me. Yeah, so EVs in the large cities, penetration rates noticeably high. In the smaller cities, still fairly high. When you go out to the more rural areas, it's going to drop off, of course. There's more skepticism about the completeness of the charging network, just maybe some more uncertainty about the technology itself. You'll hear people in the countryside saying, oh, batteries are dangerous. I heard that, I saw a video once of an EV on fire, things like that. Similar comments in the United

• 41:41Speaker 05

  States, too. But the, that the long term, the EV penetration rate will, will only continue to rise. It's

• 41:48Joe Weisenthal?

  But is it moving the dial on national oil consumption?

• 41:50Speaker 05

  I believe so. I think I saw, now, I'm not an oil specialist, but I think I've seen and I've read recently that Chinese oil imports should have peaked, right? That they should have, be ready to draw down. If, you know, if I'm lying here, may God smite me down. But I think that that was the case, and that we see a structural decline in petroleum because of the adoption of EVs.

• 42:12Tracy Alloway?

  So, speaking of EVs, there is a lot of Chinese-made clean tech that is here in the US, including solar panels as well. And this has been One of the frictions of the past few years, which is, you know, the US says it wants cleaner energy and Chinese solar panels and EVs are probably the cheapest forms of that technology around. And yet, there's a lot of, I guess, reluctance to import tons of those into the US. And certainly with Trump coming in, it seems like tariffs are on their way. How do you see all of that shaking out into the new year?

• 42:49Speaker 05

  Yeah, look, in the United States, you're going to decarbonize, or you're gonna, you're gonna buy green tech at exactly the rate that that is economic. Yeah. And so if you have access to a very affordable green tech, you'll do it at a faster rate. If you have access to more expensive green tech, you'll do it more slowly. And so I have to assume that if you, those tariffs go in place, unless alternative producers are able to offer similar quality goods at similar prices, then you're going to slow down your green transition. That's, it's maybe a simple but obvious kind of answer there. On the Chinese side, of course, there will be some pain for exporters, anyone exposed to the United States market, some solar panels, maybe some EVs,

• 43:32Speaker 05

  some batteries, I think are pretty significant. If those are targeted, yeah, you'd expect to see some pain on the Chinese side. There, it's already an extremely, extremely competitive environment in China. Most of these producers are in very thin profit margins, hanging on by a thread. It's good for consumers. It's not good for, if you're holding those stocks. So this will only just be another bit of pain for them, denial of a potential revenue channel.

• 43:57Joe Weisenthal?

  Since you mentioned EV charging stations, we have this sort of weird patchwork here, and there's a lot of, I'm a little ambiguity about the US government under Biden has earmarked a lot of money to build EV charging stations. It's a little unclear how much actually got built publicly. There seems to be a view that it hasn't been particularly successful on the public side. What is the structure of the build out for charging stations in China? Is it publicly owned? Is it, what's the deal?

• 44:26Speaker 05

  It's all of the above, I guess. So you've got, you know, China State Grid or China Southern Grid, the grid companies, they build charging infrastructure. Some of the EV makers themselves build their own charging infrastructure, maybe like a Tesla Supercharger, right? Some of them also build their own battery swap stations. I think Neo is quite famous for having battery swap stations. You can go pretty much any highway rest stop in China and you can find a Neo battery swap station.

• 44:51Joe Weisenthal?

  So then there's no time, you just swap it in and out?

• 44:53Speaker 05

  Yeah, there's a line to wait for the battery swap station if another Neo pulls ahead of you. But besides that, I mean, I think the major thrust, at least the ones that I've seen recently in the Southern Grid region, have been by the grid company itself, right? So China Southern Grid, I remember reading last year, they said, you know, we're planning to build 100,000 chargers this year. We're, you know, three months in, we're 17,000 chargers in so far. We're on track to finish our goal by the end of the year. And you do see it when you go to regions that have been targeted for those build outs, right? You can go to fairly rural areas in, say, Guangdong Province, down in the south, and you'll find EV chargers installed there by China Southern Grid and a village where I don't think there

• 45:36Speaker 05

  are necessarily any EVs. But hey, they got the infrastructure there because they said we're going to build 100K and so they built 100K.

• 45:43Joe Weisenthal?

  David Fishman, so great to chat with you again, especially in person. And I'm so glad you have other things to worry about besides figuring out how to get food in your apartment. Really appreciate you coming back on Odd Lots.

• 45:55Speaker 05

  Thanks a lot for having me, guys.

• 46:09Joe Weisenthal?

  That was really helpful, Tracy. I learned all the things, more or less, that I wanted to know about how they're building so much nuclear.

• 46:15Tracy Alloway?

  Yeah.

• 46:17Joe Weisenthal?

  What's that reaction?

• 46:18Tracy Alloway?

  Well, it does, it leaves me wondering how like replicable it is in other countries, right? Because obviously in places like the US, we don't really have subsidized finance on the scale that China does. We don't have a lot of cheap and skilled labor at the same time. And we don't have some of the, let's put it this way, like regulatory hastiness, maybe, in approving these sites and these things. I don't know. Like, how replicable do you think it is?

• 46:48Joe Weisenthal?

  No, this is the exact question because... You know, there's some subsidy, the loan programs office exist, but we don't have the same gigantic state-owned banks. And then even if you solve the financing problem, and even if you solve the market offtake problem, which is going to be very different, right? Because we have market grids in a lot of parts of the country. And so it's hard to sort of make that 40-year commitment that you will get this price. Then there's all the logistics like, oh, you needed this gigantic crane that's the biggest crane in the history of.

• 47:22Tracy Alloway?

  No, you need a big crane to make the big crane.

• 47:24Joe Weisenthal?

  You need to make, so this gets to, I mean, this is a point that Jigar Shah makes all the time. But this idea that we're never going to really do this economically. And David just mentioned the sort of daunting economics of Vogtle. We're never going to do this economically unless we do it over and over and over and over again. And it feels like the components of what it would actually take to do it over and over and over again is this massive centralized commitment to doing lots of different parts. And you know, it sounds like the regulatory side of the permitting thing. That seems about the same as the fact that the public can complain about endangered fish and all that. That's sort of similar. So people complain about annoying local NIMBYs.

• 48:07Joe Weisenthal?

  That doesn't really sound that much different. It sounds like everything else that's different.

• 48:11Tracy Alloway?

  I, I suspect the NIMBYism is slightly different too, but point taken. And I do wonder, like, how do you even go about beginning to redevelop that nuclear muscle memory in the States? It seems really, really hard. Like, okay, we can reactivate some nuclear reactors like we're planning to. But starting like new ones from scratch, it just seems like there's such a limited pool of people who are capable of doing that. And then putting in place, as you rightly pointed out, all the offtake agreements and the network and everything needed to kind of make those things financially viable.

• 48:46Tracy Alloway?

  It seems hard.

• 48:47Joe Weisenthal?

  By the way, I'm glad you asked that question about coal consumption that because that was really helpful because it's one thing to say, well, another record year for coal consumption. But I guess the way to think about it, at least in the short term, we don't know when

• 49:00Tracy Alloway?

  It's not coal consumption, it's production.

• 49:02Joe Weisenthal?

  Okay, coal production.

• 49:04Tracy Alloway?

  Yeah.

• 49:05Joe Weisenthal?

  But it's really going to be about like if coal is in fact, as a part of the, you know, if it's only growing 1%, but electricity demand is growing 6% to 7%, that is a good sign, right? Even if it's not bending the curve down yet.

• 49:21Tracy Alloway?

  Mm hmm.

• 49:22Joe Weisenthal?

  Anyway, lots there.

• 49:23Tracy Alloway?

  It's funny. I will always associate Beijing with lots and lots of burning coal in the winter.

• 49:29Joe Weisenthal?

  By the way, I had heard that about how apparently the big cities now are really quiet, which is pretty cool. And once self-driving cars are everywhere, there will be no honking either. And so we can look forward to a future, maybe one day where we just have very peaceful, peaceful, quiet big cities.

• 49:46Tracy Alloway?

  All right. Something to hope for.

• 49:47Joe Weisenthal?

  Yeah.

• 49:48Tracy Alloway?

  Shall we leave it there?

• 49:48Joe Weisenthal?

  Let's leave it there.

• 49:49Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alockway. You can follow me at Tracy Alockway.

• 49:55Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest, David Fishman. He's at Pretentious What? Follow our producers, Carmen Rodriguez at Carmen Armin, Dashell Bennett at Dashbot, and Kale Brooks at Kale Brooks. Thank you to our producer, Moses Andam. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have transcripts, a blog, and a daily newsletter. And you can chat about all of these topics, including energy and China, where we have two separate rooms in our Discord, discord.gg/oddlots.

• 50:25Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about nuclear power plants in China, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is connect your Bloomberg account with Apple Podcasts. In order to do that, just find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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