This Is How China Builds So Much Nuclear Power

24:40They'll make it back later. It's okay the system didn't fall apart. They were the lubricant. 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? 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 2023 that I thought 2024 would be the peak year.

25:22And I thought structurally we were in place to be able to peak coal consumption in 2024. And I think we're going to end up up 1, 1.5 % year on year, something like that, which for China is a huge amount of coal because they consume so much coal. But 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-est 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 7 % year on year, 6 % or 7 % year on year, compared to the US where a good year is maybe like 1 % or half a percent year on year.

25:57And you talk about data center demand growth is going to maybe rise that and everybody's freaking out. How are we going to meet this new consumption need? China's been growing like that 7%, 8 % in the past. It was even higher for decades now. So 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, 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.

26:33And so that's still where we're at. We're real close. If it only grew by 1.5 % this year, that means 7 % of China's entire consumption mix 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 going to be made a liar of that statement I made at the end of last year where I thought coal consumption would peak this year. 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.

27:06But tell us about the data center story in China as you see it and its impact on the grid. Yeah, 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 going to 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 that they're just saying, yeah, it's going to be a driver of growth.

27:41Let's put them in some of our parts of the country that have low load and great renewable resources. We're going to put them in Inner Mongolia is where we're going to put them. We're going to put demand centers in Inner Mongolia. They don't need to be close to the load centers. That's the Chinese Virginia. Chinese is Inner Mongolia. Yeah, 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 your heavy energy-intensive industrial manufacturing so far from the demand centers, so far from the coasts where you could get it to logistics.

28:14Oh, 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. So one of the things that's been happening in the U.S., speaking of data centers, is a lot of the big tech companies have been signing offtake 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.

28:50Do you see a similar dynamic taking place in China, or do people not care as much about the ultimate cleanliness of their energy for data centers? 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?

29:28There'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. 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.

30:03That's your mandatory consumption. That's RPS driven. And then you've got your voluntary consumption. So voluntary consumption, 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, 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.

30:38So 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 look, they'll give you a quote for green electricity.

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32:29Paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokerage services for U.S.-listed registered securities, options and bonds, and a self-directed account are offered by Public Investing, Inc., member FINRA and SIPC. Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at public.com. 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?

33:02And talk to us about who's funding that and where does it make sense? Like why in some places is solar going to be solar wind part of the answer versus say nuclear? 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 foreign investor who, like BlackRock, can come into China and and build a power plant if they want to, a wind or a solar farm, no problem.

33:43And 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 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 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.

34:15However, 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 kind of looks more like a nuclear power plant in the way that they finance and process that. But you know, rooftop solar facility in eastern China, no, that's very much just a commercial play. If it makes money, if it makes sense, they'll build it.

34:48So 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, how much should we believe some of these stats?

35:26Yeah. And this is going to be always very subjective about how much you want to believe or how much you think is worthwhile believing. 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 national level entities whose 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.

36:04When you tie the county governor's promotion, 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 as a real store, when you announce to 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.

36:39Everyone starts plugging stuff in. Right. So 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 misreport their data. I think that's where a lot of the uncertainty comes from. I mean, this is the core problem of central plan. I mean, this is it in a nutshell. And obviously, the most egregious examples of this were, you know, during the Great Leap Forward and all of the ways that 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 juking of the stats so that, yeah, someone's promotion who is tied to electricity consumption can't be sort of egregiously abused like that.

37:26Yeah. 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. And now that's on the terminal, the Li Keqiang Index. 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, the people in charge of reporting them, 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.

37:59And 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 is because it's all state grid, 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? Again, China Railways. You have one centralized company that would be able to report that information.

38:29So if you want to fashion your modern Li Keqiang Index, maybe try those types of indices. 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's 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?

39:09Because this is a pretty big question in the West, right? Like at some point, will EVs become big enough where it meaningfully starts to reduce our oil demand? 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? 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.

39:41It'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, 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. I heard that everyone goes to Shanghai and says it's really quiet now. 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, and it's so loud.

40:18And I hadn't really noted the lack of the noise because I'm just used to it now. 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, like, oh, batteries are dangerous. I saw a video once of an EV on fire, things like that. Similar comments in the United States too.

40:55But the long-term, the EV penetration rate will only continue to rise. It's very interesting. But is it moving to dial on national oil consumption? I believe so. 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 be ready to draw down. 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. So speaking of EVs, there is a lot of Chinese-made clean tech that is here in the U.S., including solar panels as well.

41:34And this has been one of the frictions of the past few years, which is the U.S. 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 U.S. 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? Yeah, look, in the United States, you're going to decarbonize or you're going to buy green tech at exactly the rate that is economic. Yeah. And so if you have access to a very affordable green tech, you'll do it at a faster rate.

42:18If you have access to more expensive green tech, you'll do it more slowly. And so I have to assume that if 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 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, some batteries, I think are pretty significant. If those are targeted, yeah, you'd expect to see some pain on the Chinese side.

42:51It's already an extremely, extremely competitive environment in China. Most of these producers are in very thin profit margins, hanging on by a threat. It's good for consumers. It's not good for if you're holding those stocks. So this would only just be another bit of pain for them, denial of a potential revenue channel. 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.

43:28There seems to be a view that it hasn't been particularly successful on the public side. What is the structure of the buildout for charging stations in China? Is it publicly owned? What's the deal? It's all of the above, I guess. So you've got 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 NIO is quite famous for having battery swap stations. You can go pretty much any highway rest stop in China and you can find a NIO battery swap station.

44:05So then there's no time. You just swap it in and out. Yeah. There's a line to wait for the battery swap station if another NIO 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 buildouts, right?

44:40You 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 in a village where I don't think there 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. So David Fisherman, 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 into your apartment. Really appreciate you coming back on OddLoss. Thanks a lot for having me, guys.

45:22That was really helpful, Tracy. I learned all the things more or less that I wanted to know about how there's so much nuclear. Yeah. What's that reaction? 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?

46:01No, this is the exact question because, you know, there's some subsidy. The Loan Programs Office exists, 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 crane. No, you need a big crane to make the big crane.

46:37You 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 Vogel. 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 in the fact that the public can complain about endangered fish and all that.

47:16That's sort of similar. So people complain about annoying local NIMBYs. That doesn't really sound that much different. It sounds like everything else that's different. I suspect the nimbyism is slightly different too, but point taken. And I do wonder, how do you even go about beginning to redevelop that nuclear muscle memory in the States? It seems really, really hard. Like, OK, 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.

47:59It seems hard. By the way, I'm glad you asked that question about coal consumption, because that was really helpful, because it's one thing to say, well, another record year for coal consumption. But I guess the way I think about it, at least in the short term, we don't know when the people will be. It's not coal consumption, it's production, just to be clear. Coal production. But it's really going to be about like if coal is in fact as a part of the – 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. Anyway, lots there.

48:36It's funny. I will always associate Beijing with lots and lots of burning coal in the winter. 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, quiet big cities. All right. Something to hope for. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal.

49:10You can follow me at The Stalwart. Follow our guest, David Fishman. He's at Pretentious What? Follow our producers, Carmen Rodriguez at CarmenArmond, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. Thank you to our producer, Moses Andam. For more OddLots content, go to Bloomberg.com slash 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 slash OddLots. And if you enjoy OddLots, 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.

49:47And 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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