U.S. Nuclear Suppliers Seen at Risk of Losing Business Under Export Limits to China

Analysts anticipate obstacles to new contracts in second-largest prospective market for U.S. civil nuclear parts
British Chancellor of the Exchequer George Osborne talks with Guo Liming of Taishan Nuclear Power Joint Venture Co. Ltd. (R) as he tours a nuclear reactor under construction at Taishan power plant on Oct. 17, 2013, in Taishan, Guangdong province, China. (Photo by Bobby Yip/Getty Images)
November 08, 2018 at 4:12 pm UTC

U.S. developers of small modular reactors and micro-reactors may have taken in stride the Trump administration’s new limits on U.S. nuclear technology and materials exports to China, but domestic nuclear suppliers aren’t so sanguine as they see the restrictions potentially hampering their ability to enter into new contracts in China, industry analysts said.

Restricting exports or collaboration in advanced nuclear technology to China could hinder “future collaboration between companies that isn’t yet established,” said Névine Schepers, a research analyst with the International Institute for Strategic Studies.

The Chinese market offers the second-largest prospective market, behind the United Kingdom, for U.S. civil nuclear exports, according to a 2017 report from the International Trade Administration at the Commerce Department, which added that China is in some cases “partnering with foreign governments and industry to import technology” as it works to demonstrate fast reactor, small modular reactor and other concepts. The report identified “nuclear pumps and valves, breakers, large forging parts and other accessories” as market prospects for U.S. exporters.

China “remains an important market, not just for new plant construction but the rest of the supply chain as well,” Schepers said in an email through a spokesperson.

U.S. nuclear exports to China in 2017, including nuclear reactors, machinery and other parts, stood at about $170.3 million, according to the Census Bureau. In contrast, U.S. exports of those products to the United Kingdom were shy of $28 million last year.

“The big question is how much China will compete with the U.S. going forward,” said Jessica Lovering, director of energy at the Oakland, Calif.-based Breakthrough Institute research group. One concern, she said, is that if China cannot get nuclear technology from the United States, it  will work harder to develop those resources at home and make the Chinese “even more successful and competitive because they were forced to by these restrictions.”

The United States, in the last decade, has in some cases actively helped facilitate an international market for U.S. nuclear suppliers to ensure a robust domestic industry. That includes helping Westinghouse Electric Co. negotiate with China over building four AP1000 pressurized water reactor units in the country.

Westinghouse declined to comment for this article, referring questions to the Energy Department.

A National Nuclear Security Administration spokesman said by email Thursday that since the policy framework was announced, representatives from the relevant licensing agencies have been available to assist exporters with licenses on hold to discuss pending authorization requests, but the spokesman did not address a question about whether the Energy Department has concerns about the potential impacts of the new policy on U.S. nuclear suppliers.

In a nod to Westinghouse’s ongoing pressurized water reactor work in China, the policy framework carves out an assumption of approval for exports of equipment and components for continued projects “such as construction of AP1000” reactors.

“Our team has been closely monitoring this situation for months now in hopes of some type of resolution on licensing policy, so this wasn’t something that caught us by surprise,” Jim Ryan, senior director of investor relations for engineered products and services provider Curtiss-Wright Corp., said of the new export framework by email.

Curtiss-Wright’s initial take on the new U.S. policy framework is that “this is a positive” for the company’s existing reactant coolant pump contracts supporting AP1000 reactors, including its  2015 China Direct order, said Ryan.

However, he said, “it could be several weeks (or months) before we have full clarity on the new policy language.”

But the new export policy comes after Westinghouse already successfully established a reference plant for its reactor design in China.

Westinghouse’s longer-term prospects in China have “diminished over time,” particularly as Westinghouse has transferred the technology for its pressurized water reactors to China, said Mark Hibbs, senior fellow in the nuclear policy program at the Carnegie Endowment for International Peace.

That implies, Hibbs said, “that Westinghouse would be settling back into a standard role of providing services, engineering and consulting activity for additional reactors” and equipment, but less over time.

According to the International Atomic Energy Agency’s Power Reactor Information System, there are 454 nuclear power reactors currently in operation around the world, 46 of which are in China. And since U.S. companies such as Westinghouse make most of their money through servicing existing reactors, Hibbs said, “the magnitude of the effect of this change on nuclear business in the United States will not be very great.”

The new export model followed an interagency review of nuclear exports to China, which determined that China was working to obtain nuclear technology from U.S. companies for military or other purposes. The restrictions also come amid multiple recent federal actions to try to curb what the United States says is the theft of intellectual property from U.S. firms.

Christopher Ford, assistant secretary of the Bureau of International Security and Nonproliferation, said in an Oct. 24 speech at the U.S. Naval Academy in Annapolis, Md., that China has long tried to acquire foreign technology to advance its military and has included nuclear reactor technology in that quest. The new policy, Ford said, stops cooperation over advanced nuclear projects that China “clearly plans to use” for military purposes.

Even before the new export restrictions were imposed, the domestic nuclear industry had been worried about the administration’s stance on China. In March and July this year, the Civil Nuclear Trade Advisory Committee, a panel established by the Commerce Department composed of civil nuclear industry representatives, wrote letters expressing concern about the administration’s decision not to grant new nuclear export requests until the federal review ended.

“U.S. companies are losing business and jobs as a direct result of inaction on those export requests,” the panel said in the letter dated March 15, which noted that the Chinese nuclear export market is worth “billions of dollars.”

In an email on Monday, a National Nuclear Security Administration spokesman confirmed that review of export requests to China had been placed on hold until the conclusion of the policy review.

Hibbs said he did not expect China to respond to the new restrictions by ending contact with smaller U.S. companies with more advanced nuclear technologies, whose greatest concern right now is likely “getting the support of the United States government for these projects.”

That may be the case for TerraPower LLC, the nuclear company backed by Microsoft Corp. co-founder Bill Gates. Some analysts said they suspected TerraPower might be the intended target of the new policy statement.  

TerraPower’s project in China is one of the only advanced reactor projects with a concrete agreement with China and would “definitely be looking for more agreements and more licenses for exports in the future,” said Lovering.

Marcia Burkey, chief financial officer of TerraPower, said the announcement of the new policy caught TerraPower “by complete surprise.”

The policy will impact TerraPower’s ability to work with an affiliate of the China National Nuclear Corp. on a traveling wave reactor, which they jointly intend to commercialize, Burkey said. TerraPower is aware which of its technologies fall under the policy framework due to its license, she added.

The company is still evaluating the impacts of the new policy for its business and is “closely and continuously” in touch with the Energy Department over the new restrictions and what the administration is doing to help cultivate the domestic advanced reactor technology, Burkey said.

One of the impacts of the policy, she said, is potentially to eliminate the predictability for companies, whose private investors want a return on their investments.

“We need market-based solutions to address what we’re trying to address here” -- the development of clean, emission-free energy, she said. Timeliness, transparency and access to global markets are important to the entire nuclear industry, she added.

Jacqueline Toth previously worked at Morning Consult as a reporter covering energy and climate change.

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