This Chinese Nuclear Plant’s Success Is Critical to Westinghouse’s Future

The start-up of a nuclear power plant south of Shanghai later this year has a lot riding on it.

It’ll be the first to use a new reactor designed by Westinghouse Electric Co., and its success is critical for the embattled company’s future. Development of the same AP1000 model has been disastrous for the firm in the U.S., leading to bankruptcy and doubts over the future of its owner, Japan’s Toshiba Corp.

If all goes smoothly at the Sanmen facility, the Chinese could unleash a wave of approvals for new reactors. South Africa, India, Mexico and the Czech Republic are among other countries also considering the design, and are more likely to adopt it once China has taken the first, crucial step. That will boost the allure of Westinghouse should it be sold in the restructuring.

“Sanmen AP1000 is a showcase to the worldwide nuclear power industry, and its success will probably trigger a new round of construction,” said Shi Yan, a Shanghai-based utilities analyst at UOB Kay Hian Holdings Ltd. “Everyone wants to build AP1000 reactors, but very few want to be the first building it.”

Read more: Private equity firms are circling Westinghouse amid its restructuring

The reactor is the culmination of decades of research and development at Pennsylvania-based Westinghouse, one of the oldest and most-respected reactor builders. It’s simpler design and safety features are meant to avoid the type of meltdown Japan suffered in 2011. And it’s the only current-generation reactor cleared by U.S. and U.K. regulators, a selling point for countries such as Mexico that say they won’t build a reactor unless it’s been cleared by the U.S. Nuclear Regulatory Commission.

Financial Disaster

But it’s also taken Westinghouse, and its parent, to the brink of disaster. The company filed for bankruptcy last month amid cost overruns and delays related to the construction of four of the units in the U.S., which led to a $6.3 billion writedown at Toshiba. Amid mounting speculation Westinghouse will be put up for sale, the company this week is due to decide on whether to continue with the projects in Georgia and South Carolina.

The Sanmen project in China’s Zhejiang province has not been without challenges. It was scheduled to begin in 2013, but was delayed due to design problems, supply-chain bottlenecks and stricter safety measures after the Fukushima disaster.

It’s now slated to start by the end of the year and Westinghouse’s bankruptcy won’t have a material impact, China’s State Power Investment Corp., the lead developer, said last month. SPIC didn’t respond to requests for comment this week. Fuel will be loaded into the reactor this summer and it’s expected to come online this year, Westinghouse said Wednesday.

China’s waiting for Sanmen to confirm that the AP1000 is safe and economical before going “all in” with more approvals, according to Shi Yan. The nation has 21 reactors under construction, of which four are AP1000s, according to data compiled by the World Nuclear Association. More than half of the 41 further planned units are pegged to be AP1000s, WNA data shows.

Cheaper, Faster

Once challenges associated with building the first-of-a-kind are overcome, the reactors will be cheaper, faster and more efficient to construct, according to Daniel Poneman, a former U.S. deputy energy secretary.

Potential customers realize “that this is the reality of building new reactors after a long hiatus,” Poneman said in an interview in Tokyo.

While the cost overruns in the U.S. are worrisome, they were triggered by the binding financial agreements on the project’s expected cost, not flaws in the reactor design, according Phumzile Tshelane, chief executive officer at South African Nuclear Energy Corp., which is considering AP1000s for as many as eight reactors. The country can avoid construction risks by letting someone else to be the first to successfully build one, he said in an interview in Tokyo.

“The AP1000 design is a good design and I’m confident that the four plants under construction will be built,” said Trevor Cook, a nuclear engineer in the U.S. Energy Department’s Office of Nuclear Energy, according to Bloomberg BNA. “Unfortunately, the builder was not as experienced and didn’t have the people there to get the job done quickly and on schedule, and that led to the problems today.”

Westinghouse announced in February that it would no longer build nuclear reactors, focusing instead on selling designs. The company aims to pursue international projects without taking on construction risk, according to spokeswoman Sarah Cassella. It had 37 new AP1000 projects planned through the year ending March 2031, including in India, the U.K. and Turkey, it said in a presentation last year.

The AP1000 is one of a few reactors in the world to use a fully-passive system, meaning the core can cool itself without electricity or human interaction for 72 hours. That may avoid a disaster like the meltdown at the Fukushima Dai-Ichi plant, which occurred when a loss of power left the reactor cores exposed.

Not First, Please

India aims to build six AP1000s, and is currently in negotiations with Westinghouse, according to Satish Kumar Sharma, chairman and managing director of the Nuclear Power Corporation of India Ltd. Westinghouse is among suppliers Czech Republic is meeting for its Dukovany facility, according to Lenka Kovacovska, deputy minister for energy at the country’s industry and trade ministry.

“We will need to wait to see what happens with Westinghouse and Toshiba, but of course the design is very good,” said Alejandro Huerta, deputy director general for nuclear policy at Mexico’s Ministry of Energy, which is considering the AP1000 for three units. “We don’t want to be the first-of-a-kind. We don’t want to have construction delays as we have seen in other projects.”

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