The U.S. Energy Department (DOE), acting as the point agency for the Trump Administration, announced new policy guidance regarding China that is intended to prevent Beijing from illegally diverting nuclear technologies and materials from civil to military programs.

The policy seems unlikely to make an impact since China is essentially self-sufficient in the area of nuclear weapons. It doesn’t need U.S. civilian technologies to continue to develop its deterrent powers.

China does have a record of pilfering civilian technologies and the feds point to a 2016 case which not only involved unlicensed transfers of information on civilian nuclear fuels, but which also exposed significant gaps in China’s SMR R&D program.

Also, according to the New York Times for October 11, U.S. nuclear trade with China is almost inconsequential in terms of absolute dollars clocking in at a paltry $170M in 2017

What the policy does do is harm U.S. firms that have ongoing commercial relationships with China or which want to do business with China in the future.

What’s in the Policy?

U.S. Energy Secretary Rick Perry issued new policy guidance in October saying that the government’s intent is to prevent China from using its civilian nuclear technologies to advance military goals. In particular, the national security issue is the placement of floating nuclear power plants moored to islands in the South China sea with the intent of establishing territorial controls over the region.  China broke ground on the first of 20 units at Shandong on 11/04/18,

Note the US is also exploring the development of SMRs for use at military bases to insure tactical readiness in cases where the local grid is unreliable.

The Department of Commerce, Department of Defense, Department of Energy/National Nuclear Security Administration, FBI, Intelligence Community, Nuclear Regulatory Commission, and Department of State all participated in the U.S. policy review, which was led by the National Security Council.

Some of the basis for the policy was laid last July. Christopher Ford, assistant secretary of state for international security and nonproliferation, outlined U.S. concerns about China’s policy of “military-civil fusion.”

He said that that Beijing is working “to eliminate all barriers between its civilian and defense industrial sectors to promote the free flow” of technology and expertise. In the case of plans to use floating SMRs to secure reliable power for artificial islands in the South China sea, this is already well known plan. That the US is finally acknowledging it is a key justification for the export ban

The new DOE policy is intended to provide a framework for assessing licensing requests by US nuclear firms to do business with China. A presumption of approval will still apply to certain requests for the sale of commercially available technology or extending existing authorizations, but there will be a presumption of denial for exports to China related to small modular reactors, new technology transfers, and any requests to direct economic competitors of U.S. entities.

The vague nature of the language in the policy statements set off a scramble, among DC-based law firms and lobbyists that work in the arcane area of nuclear export controls, to explain the details to their clients and what it all means.

The policy does get specific with regard to one Chinese state-owner nuclear firm. It says there will also be a presumption of denial for licensing exports related to the China General Nuclear Power Company (CGN).

The CGN Economic Espionage Case

China General Nuclear Power was indicted in April 2016 for “conspiracy to unlawfully engage and participate in the production and development of special nuclear material outside the United States, without the required authorization.”

This is a case that involved a US citizen and former TVA engineer who subsequently pleaded guilty to charges of illegally sharing U.S. technologies with the firm.

The indictment includes a long list of technical data and analyses provided to CGN. The key information passed by Allen Ho to CGN is described as nuclear reactor outage data for use at CGN’s Daya Bay Nuclear Power Plant.

Daya Bay has two 944 MWe PWR nuclear reactors based on the Framatone ANP French 900 MWe three cooling loop design, which started commercial operation in 1993 and 1994 respectively. It is located on China’s southeastern coast in Longgang District, Shenzhen. Its design is believed to have helped China with the launch of its new 1000 MW Hualong One PWR that is intended for export markets.

China is building reference units at the Fangchenggang nuclear power plant in western China. The unit is the first of two demonstration Hualong One (HPR1000) reactors being built at the site in the Guangxi Autonomous Region, about 45 kilometres from the border with Vietnam.

The technical details of the information Ho is alleged to have shared with CGN also include data to assist CGN’s work on development of its ACPR-100 small modular reactor, nuclear fuel assembly design and fabrication, and computer codes for modeling the operation of commercial nuclear reactors.

Additionally, Ho is alleged to have obtained information on advanced nuclear reactor fuels performance data, and potential damage to reactor pipes caused by abnormal water pressure events.

U.S. Industry Response Mixed

The Nuclear Energy Institute (NEI) said in a statement that “the policy framework is based on legitimate concerns,” but cautioned that careful implementation is critical to mitigate commercial harm.

“The US government has undertaken a thorough review of civil nuclear cooperation with China and developed a policy that seeks to balance national and economic security concerns with potential harms to our strategically important industry.

NEI is working with our member companies to determine the scope of commercial impact from the policy framework. Given that various nuclear technologies will be shut out of the world’s largest market that impact is clearly significant and we are reviewing this very carefully.”

The guidance, NEI said, “appears to have little effect on the approved transfer of large light water reactor technologies and components,” such as those for Westinghouse AP1000s that are now already operating in China.

Applications under 10 CFR parts 110 and 810 have been on hold since 2017, pending the policy review. DOE and the US Nuclear Regulatory Commission have said they will meet with applicants “immediately” to clear the backlog of pending applications.

Even so the trade group asserted that the policy created uncertainties for its members and that some of them could be negatively impacted by it.

TerraPower Concerned about Impact of Policy on Investors

One firm that is developing an advanced nuclear reactor, and has a significant working relationship with China, is TerraPower. Marcia Burkey, senior vice president, at TerraPower, said in an email statement.

“The United States’ action potentially eliminates the predictability needed for private investors to participate in market-based solutions to meeting the world’s clean energy needs. We developed our program in close collaboration with the U.S. government. Today, we are working closely with the NNSA and DOE and will remain compliant with any new U.S. government application of the export control rules.”

TerraPower has a long record of dotting all the “i’s & t’s” needed to pursue joint technology development with Chinese firms. No doubt it expected some form of reciprocity from DOE in terms of letting the firm know in a timely manner of any changes to the agency’s export policies.

Other Firms Also See Missed Opportunities

This leads to a question of whether the policy was developed in haste without adequate consultation with stakeholders including firms already doing business in China.

NuScale, a developer of a 50MW SMR based on light water technologies. told the Morning Consult that it was not made aware in advance of the policy. NuScale has received financial assistance from DOE for design and licensing costs and is planning to build its first unit for a customer, UAMPS, at a site on the Idaho National Laboratory. One would think that the government would give stakeholders like NuScale a “heads up” and not let them be startled by news headlines.

Tom Munday, an executive with the firm, told the Morning Consult that despite being taken by surprise, the firm does not see any immediate impact of the policy though eventually it would like to sell its reactors to China.

At the Third Way, a DC think tank that has spent considerable time working on issues related to development of advanced nuclear technologies, Joshua Freed, VP of Energy Programs, told the Morning Consult that he laments the fact that the new restrictive policy on exports isn’t counter balanced by new initiatives to promote advanced nuclear technologies in domestic markets.

He makes a good point. Why would the government on one hand slam the door on exports without some moves to mitigate the impacts on US firms? The substance and roll out of the nuclear export restrictions are similar to the way the US has handled other aspects of its trade war with China. It tars with a wide brush and doesn’t appear to care who gets hurt along the way.

For instance, Trump’s trade policies killed off $36 billion in US soybean exports to China while offering US farmers just one-third of that amount in compensation.

Like the soybeans now rotting in US fields, China can get civilian nuclear technologies from a number of other countries and does not need US suppliers. So what did the US government hope to achieve? How will it slow down China’s economic espionage of US firms, which seems to be going full throttle?

For instance, on October 4th the Bloomberg wire service published an incredible story of how Chinese firms, with apparent help from their government, hacked the supply chain of a US firm that assemble high end computers for firms that do business with US defense and intelligence agencies and which also supplies these same advanced high performance servers to technology giants like Apple and Amazon.

Apple and Amazon quickly and vehamently denied that their computers were affected by the hack, but the Bloomberg wire service said its stands by its reporting.

Does the Policy Matter to China?

The answer to the question of whether the policy matters to China is that substantively it’s not very much. China has minimal reciprocal trade with the U.S. in this industry. Despite a ham-handed effort by Assistant Secretary Ford to jaw bone the U.K. over its plans to buy full size light water reactors from CGN, these deals are going forward.

CGN has a one third equity stake in the massive Hinkley Point C reactor project and is slated to build its new Hualong One PWRs at a future site in the UK.

According to an Oct 24th report by the Financial Times, the UK government defended its position as what it described as “one of the most open economies in the world” saying that foreign investment had created 76,000 new jobs in the past year.

“We welcome Chinese investment but like all inward investment it needs to satisfy our robust legal, regulatory and national security requirements. Decisions on US investment and export policy are a matter for the US government.”

In short, the UK government told Ford to take a hike. Other countries that have similar deals with China are likely to give the State Department similar answers.

China’s Hualong One is well on its way toward completing its Generic Design Review (GDR) with the UK which once achieved would establish a the basis for a license for the Bradwewll project in Essex. The 1000 MW design is slated as a replacement for two Westinghouse AP1000s originally planned for the project. As the UK sees it, that deal hinges on the huge equity stake CGN has in Hinkley Point staying put and not being disrupted by trade disputes between China and the US.

The export effort by China General Nuclear to build two of its Hualong One (HPR1000) PWR type reactors at the Bradwell site in Essex, UK met a major milestone on November 16, 2017. Britain’s Office for Nuclear Regulation said in a press statement that the reactor had completed stage one of the Generic Design Assessment which is a check of the readiness of the application to undergo a detailed safety review.

Britain’s Office for Nuclear Regulation said the Chinese HPR1000 reactor will now move to stage two of its generic design assessment – the formal process for approving a new reactor. The four-stage assessment process is expected to take around four years.

No Impact on Floating Power Plants

China’s plans for deploying floating nuclear power plants at islands in the South China Sea are firmly in the hands of its military. U.S. bans on exports of civilian technologies will not have any impact on those deployments.

According to the World Nuclear Association China is far ahead of the US in development of small modular reactors (SMRs) with multiple efforts to bring to commercial operation both light water and advanced reactors such as pebble bed fueled HTGRs.

In the end the US has made clear its displeasure with China’s practices of stealing intellectual property, but in terms of geopolitical impact on developments in the South China sea, it doesn’t look like anything will change for all the disruption the uncertainties of the DOE policy will cause to US firms.

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