Coal & Nuclear Are Very Different Beasts In China, Per Expert – CleanTechnica

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Last Updated on: 9th February 2025, 12:27 pm

Recently I had the opportunity to sit down with an expert in China’s energy transition, David Fishman of APAC-focused Lantau Group. In the first half of the conversation we talked coal, gas, and nuclear.

Michael Barnard [MB]: Hi, welcome back to Redefining Energy Tech. I’m your host, Michael Barnard. As always, we’re sponsored by TFIE Strategy, a firm which assists investment funds and firms to pick the winners and avoid the losers in climate solutions. My guest today is David Fishman, senior manager at the Lantau Group and one of the world’s leading specialists on what’s happening in China with electrical generation. Welcome, David. 

David Fishman [DF]: Thanks for having me, Mike. 

MB: So everybody can hear that you do not have a Chinese accent, but you’re sitting in China and you work professionally in China and you speak Mandarin. And so I’m just going to say Ni hao ma and then ask, how did a white guy end up being a fluent Mandarin speaker working in Shanghai? Tell us the story. 

DF: Yeah, well, I went to college, right? I’m from a small town in Maine. Went away to school in Atlanta and went to Emory University in Atlanta. While I’m studying there, I took language classes. Of course, I studied Chinese just kind of for fun. It was something exciting, maybe a little exotic, right? I’m studying Chinese. You know, if you dig a hole through the world and you come out on the other side, where are you? You’re in China, right? That’s the old joke that we make, right? So it’s just, you know, China’s far away. It’s interesting. And then I did a study abroad. Well, of course you study abroad in the place where you’re studying the language. So I did a study abroad in China and I just loved it. I loved my study abroad period. 

I was learning Chinese every day. I was just having a great time and I had to go back, I want to do something really, you know, involved with this country. This is just an exciting, interesting place to be. And so after I graduated, I got into a graduate program out here. An American university and a Chinese university have a joint degree program in China. So I came back and I did a degree, I did my master’s degree in China. I wrote a Chinese graduate thesis and everything. And then I graduated and I just started working in the country and I’ve never left, I’ve never worked anywhere else. I’ve never been an adult anywhere else in the world. This is my life. 

MB: Excellent. And right now you’re working for the Lantau Group. Tell us a bit about the Lantau Group. Because clearly, if they’ve got you there and you know, with your specialization, they’re doing something interesting in the space. 

DF: You know, Lantau Group is an Asia Pacific-focused energy and gas consultancy. And it’s very niche, very specialized. We just do this one thing. It’s just economic consulting for energy players. Either you generate electricity or you regulate electricity, you design energy markets or you consume a lot of electricity. The Lantau Group was, you know, it came out of another consulting firm and that had an Asia wing. And the Asia wing was, I believe they were planning to shut down the Asia wing of their business during the financial crisis back in 09 and there was a partner buyout and our company was formed out of the partner buyout at the time which created this very kind of niche, wonky, energy-focused, laser-focused on just energy. And we only do Asia consultancy that we are today. 

I’m in the Shanghai office. We’re headquartered in Singapore with major offices in Singapore, Hong Kong, Shanghai, Delhi India, and a bunch of smaller offices throughout Southeast Asia. 

MB: Oh, interesting. So today we’re going to be spending all of our time talking about electricity. And I’m wonky and nerdy and most of the people who listen to my show are wonky and nerdy. So if you feel the need to get wonky and nerdy, don’t hold back. We have 90 minutes to explore something which could be a graduate class that takes 10 years to understand. So we’re going to only scratch the surface as it is. But let’s start with kind of the ugly. You know, everybody keeps hearing about coal and China and you know, one of the things, that I think possibly got more attention than anything else you’ve ever published was your projection for coal for 2024. You know, certainly one of the things that I got shared in my stuff. 

So I know the reality of coal in China is a lot more nuanced than most people understand. So how would you introduce the subject of coal and electrical generation? How would you tell the story and what other things would you bring in, like mothballing and you know, a replacement and stuff like that? Talk to us about coal in China. 

DF: The Chinese coal fleet is utterly mind-boggling. When we talk about the scale, right? We’re talking about 1200, heading for 1300 gigawatts of installed coal capacity and still permitting and licensing more. It’s slowed down quite a lot versus the trend of the last few years, but still allowing more to enter the system. And, and still between 55 and 60% of the final generation mix is also coal-fired generation. Sometimes you’d see it would be thermal generation. If that’s reported, you can assume that’s 90, you know, 98, 99% coal. Gas plays a very small role in the power sector. So coal has this obvious, amazingly powerful and influential role in the Chinese energy landscape. It’s domestic, it’s cheap, it’s affordable. You have almost full control over the supply of coal, the pricing of the coal. 

The major miners domestically are SOEs, state owned enterprises that are supplying the coal to state owned generators at fixed prices so that they can supply power at regulated rates or partially regulated rates. It’s a very controllable process. Yeah. So it makes a lot of sense. And then of course, you know, they’re very good at building coal plants. So you want to grow your energy consumption and you’re forecasting that we’re going to need this much more electricity next year and the year after that. Your first instinct, of course, is going to be, well, coal plants can do that really well. Why wouldn’t we build more coal plants? Of course they have some horrible externalities which we all knew about, we all noticed in the past with the horrible air pollution in China. 

But then also on a more global scale, we know that coal plants and fossil fuels have this huge negative externalities. So we talk about what China is trying to do now with coal. Yeah, it’s trying to keep that very high rate of electricity consumption growth. You want to be able to grow your economy in the way that it needs to consume more electricity every year, 6%, 7%. But you want to do it without using that much coal or without even using any more coal than you did the year before. That’s a massive challenge. And that’s kind of the key that the Chinese energy stakeholders are trying to solve right now. 

Can you get to a point where you can keep growing your energy consumption, you can keep increasing the electricity abundance for your citizens who don’t actually consume that much on a per capita basis? A lot of Chinese people, can you do that without increasing coal usage? And they’re very close, but they haven’t gotten it yet. Right. I was really optimistic that 2024 would be the year where we would be able to see all new incremental electricity demand met by incremental clean energy sources. We were very close, were tracking well for that throughout the first half of the year. In fact, at the first half mark, coal consumption was down year-on-year versus the first half of 2023. And I was, you know, I declared an early victory. 

I admit I got really excited back in December, I had called that this would happen. December 20, I said, I think, sorry, December 2023, I said, I think 2024 is the year. And then throughout 2024, the first few months it looked like I was right. I was really pleased with myself. And then, you know, I always added that caveat, but I didn’t expect the caveat would come true. The caveat was assuming hydropower shows up, assuming hydropower continue to perform well. And it did until it didn’t. 

MB: And to be clear, nobody listened to that caveat. 

DF: Yeah, well, you know, it seemed like, look, I was hedging, right? I was hedging my commentary just in case. And now I get to point to it, right? Now I get to point back to it because hydropower did do quite poorly at the end of the summer, starting in September, hydropower really started to perform more poorly year-on-year. And at the, you know, by the end of that, well, the end of 2024, it looks like we’re going to be up coal consumption for the year. It’s not going to be a lot, I mean it’s going to be a, in volume because 1% growth in China is a lot of coal, but it’s going to be a small growth. And so I want to highlight, you know, 7% year on year electricity demand growth, 1% coal demand growth. Great. 

That means actually we almost, we really got close to meeting all of our new demand energy sources, but we didn’t. We didn’t. And so therefore carbon rose. Right. Emissions rose and well maybe they won’t rise. Maybe there’s non-power sectors will, you know, balance it out. Right. You’ve got steel, you’ve got cement, you’ve got transportation. So maybe emissions may not rise, but certainly anyway, coal consumption will still rise in 24, which is a bummer. 

MB: Let me lean into this a little bit because I spend more time on cement, steel, and transportation than you do. I’ll provide a bit of a gloss before we return to electricity. So I’m an optimist about China’s trajectories as well. I do projections as you know, decades into the future, which gives me the nice opportunity to be killed by a bus before I have to eat any crow. The projections I have are a significant decline in emissions in the coming years because there’s structural transformation going on. The primary non-electrical thermal generation and thermal coal uses of steel and cement are structural in the end because the infrastructure boom is ending. We’re going to start seeing a decline there. 

China didn’t permit any new coal-fired blast furnaces this year at all [in 2024]. It’s pivoting to electric arc furnaces powered by electricity. It has 260 to 280 million tons of scrap. Its steel demand will be declining, its cement demand will be declining, and much more of its steel demand will be met by domestic scrap as we move forward. I expect the non-electrified portion of the economy to decline quite significantly and then the electrified portion of the economy to go up as well. 

I’m not the only one to observe this. I’ve been looking at this for a couple of years, but one of the key ratios that I use is the percentage of total, the ratio of the total terawatt-hours of electricity in the economy versus total terawatt-hours of all energy in the economy.

The degree of electrification of the economy is something I consider a key statistic or measurement of the efficiency of the economy and how much it can decarbonize. You can’t decarbonize a blast furnace that’s running on coal, but you can decarbonize an electric arc furnace that’s running on electricity. Simple, simple. This year, based on the statistics I have, China’s degree of electrification of its economy surpassed Europe’s. Europe was the most electrified economy in the world from 1990 onward and it grew very slowly in that regard. The United States started much lower and grew much less. China started lower than everybody and now is the most electrified economy in the world. 

DF: Yeah, I mean it makes sense. You have to import petroleum products. You’ve got to worry about the negative externalities of a lot of fossil fuel products. If you can just stack up all of your production, all of your exposure to electricity, something that you can then go on to control at the source, you can choose the type of electricity you create, your just multiplying your exposure to this one energy source which then you can turn into a green energy source if you want to. I see a similar philosophy right now being used for some of the long term, deep decarbonization options. They’re definitely not mature right now. 

But I see a lot of, there is the CETO report, the China Energy Transition Outlook Report, which is from ERI and the, that the Danish government, I believe, funds it and they just had a new report out a month and a half ago that showed in the long term, the way they want to deep decarbonize is by huge stacking exposure into everything that you could possibly do with green hydrogen. Now I think green hydrogen is bad for a lot of things, specifically for power and then especially also for short term passenger vehicles. But I think green hydrogen is very interesting for methanol and very interesting for ammonia and very interesting for some of these, you know, maybe safe stuff like that. 

And so when you talk about how do we get the last 10% in, you know, can we fix this problem again with electricity? Can we electrolyze? Because we’ve got this huge daytime surplus of solar which they’re expecting to have, right? Can we just turn it all into hydrogen? And you know what, it’s super inefficient. It’s not, it’s not a really great way to convert energy from the sun into energy that we can use. But we’ve got so much of it and if our only exposure is sunlight and we can just turn it all into hydrogen and then what can we do with that long term, can we fix the last 10%? That’s some of the thinking that I’m seeing now to stack the exposure, like you said, to electricity. 

And then in that case for the super hard to abate sectors, can that be hydrogen? 

MB: I don’t know if you’ve ever seen my hydrogen projection through 2100. I’m incredibly arrogant, but I always say, I don’t claim to be right, I just claim to be less wrong than most. But I have the most heterodox projection for hydrogen because demand declines. It’s not going to be used for transportation. It’ll be used for hydro-treating biofuels. The biggest demand area is refineries and that’s going to go down radically as we stop burning fossil fuels. The petrochemical industry will mostly be accepting light sweet crude which uses a lot less hydrogen to hydro treat. 

It takes 1.5 to 2 kg per barrel of oil to hydro treat and crack sweet, light crude, than it does to crack Alberta’s product, which requires 7.7 kilos on average of hydrogen. There’s a good reason why Alberta’s product, Mexico’s product, Venezuela’s crude products are going to be first off the market. 

Methanol is a good use case. It’s a heavy industrial feedstock, as is ammonia fertilizer. We’ve got some levers that we can pull there to reduce our use of it, but we’re not going to eliminate our use of it. 

And so steel, as I think you know, we’ve also got molten oxide electrolysis for new steel as a promising technology. Not commercialized yet, but multiple people around the world are working on it, including I’m sure in China. You know, anytime anybody says I’m doing this and I ask what’s China doing in that space? I think you don’t know how exposed you are to what China’s doing in that space. China’s just doing so much. 

We are still going to need 70 or 80 million tons of hydrogen in the end game a year, even if we don’t use it for transportation in my heterodox projection. It could be 150 or 200 million tons a year. We have to make it somehow. 

DF: Well, I think there’s a transportation area. It’s probably shipping. I know the shippers right now are reasonably optimistic about it. I was in a EU Chamber of Commerce meeting here in Shanghai last month, two months ago, where we learned that several of the major shippers have just placed orders for, you know, dozens of methanol of methanol ships and signing supply contracts with giant industrial bases inner Mongolia that promised to be providing them with green methanol. And that really opened my mind to that as a use case at all. I think they’re still comparing the benefits of electric ships versus biodiesel ships versus green methanol ships. And some of them appear to have made a modest bet so far on methanol. 

MB: What I’m seeing globally is that 2024 was the year when methanol fell out of favor. It had been promoted heavily as a low carbon shipping fuel for years. Unsurprisingly, I have a projection through 2100 of all maritime shipping demand and decarbonization pathways, which is due for an update because the plummeting price of batteries has actually changed the economics of shipping. But we’re not here to talk about shipping, although in 2023, China took 59% of all global ship orders. It’s just taken over the ship manufacturing market, which is going to be so weird for the United States. 

But let’s go back to electricity. Let’s talk about two things that I observed. A year and a half ago, I went and looked at the Global Energy Monitor and I saw a lot of coal cancellation, coal mothballing, and coal shuttering. So what’s your perspective? I mean I saw 775 gigawatts of canceled, mothballed, or decommissioned coal plants in that data. What’s your perspective on that? One of the questions I have for you, because I know you’ll know much better than almost anybody else, is how much of the new permitted coal plants that have been built have been supercritical, lower emissions plants that replaced high emissions first generation plants. What did you see? What do you see in that space? 

DF: The trend for the recent years has been to demand coal plants to perform or the new coal plants to be at a standard that was never required before. They are indeed going to be the ultra supercritical plants. They are going to have requirements for their fuel efficiency. They’re going to have requirements for their ability to ramp, right. For their ramping from 30% power to 80% power. Traditionally we say all coal plants can’t operate flexibly. Well, China is actually demanding that they be able to operate flexibly, that they have the ability to operate them like natural gas plants. Of course they can’t be like natural gas plants, but that’s the role they’re playing. The United States has natural gas plants and so that provides the flexibility in the US system. And China doesn’t have natural gas, they have coal. 

As a result they have to get their coal plants to try to operate the way the United States natural gas plants do. Of course, the new plants are much more efficient, much more flexible. And you know, they’re not clean. They’re quote unquote clean. Right. They’re cleaner than they might have been if they were other types of plants. But then, yeah, we look at those huge lists of cancellations. Now, those go back many years? That’s an accumulation of many years of cancellations, mothballs, etc. But definitely a lot of the capacity that was planned in the last few years just didn’t make any more sense. 

If you are a local government or a provincial government and you were planning to build a coal plant and then you were looking at your revenue projections, you’re saying we’re going to be trying to sell power into what is an increasingly marketized grid system and we’re going to be competing with all of these other types of energy which are cheaper and also they don’t incur carbon costs and also they command a green premium when they sell to the end users and we don’t get any of that. And I look at the utilization factor for coal plants last year and it was 48% or 49% and I go, I don’t think we can make money building and operating this coal plant anymore, so we’d better just cancel it. 

As for the mothballed or the decommissioned capacity, I don’t think too much large capacity has been shut down. A lot of smaller plants though, the least efficient, the dirtiest, I think most provinces now have demanded that all capacity smaller than 300 megawatts be shut down or put on a path to shut down. That also implicates a lot of captive capacity. And in certain provinces, captive capacity, you know, steel producers or petrochemical facilities that have their own coal plant, the captive capacity is a significant portion of the province’s installed base. Sometimes it doesn’t even show up in a list of assets in that province because it’s not actually connected to the grid, or it was only recently connected to the outside grid. It was just serving the needs of that industrial facility. 

But a lot of those facilities now are also being targeted for decommissioning as they weren’t able to meet NOx and SOx standards, they weren’t able to meet ozone standards. And so they, when they finally go ahead and enforce the regulations that were on the books for these captive plants, there was no way that they could survive. So that’s been part of the story also of what’s been going on with coal capacity shutting down. Is it a one to one right where you’re, you know, you’re shutting down one old inefficient plant for every new super efficient, ultra supercritical? I don’t think so. As you can see, net, we’re still rising. Net net capacity is, coal capacity is still growing. But certainly you’re getting some of the worst offenders out of the system. 

MB: The worst offenders, they might have 1.4 tons of CO2 per megawatt-hour of electricity. Supercritical coal plants with washed high grade coal might see 0.8 tons of CO2 per megawatt-hour, which is still worse than natural gas claims to be. The United States claims it’s around 0.4 tons per megawatt-hour. The problem is the leakage rates from the natural gas system in the United States. If you assign the emissions from natural gas extraction, processing, distribution, and LNG plants to electricity, the United States electrical generation from gas is actually about 0.7 tons. 

Supercritical coal is about 0.8 tons. Natural gas in the United States, about 0.7 tons, if you count it that way, which is not a great way to count it. But for this purpose it is because, you know, it’s natural gas vs coal. Of course, coal comes with a lot more negative externalities on top of natural gas. I did the math a few years and worked out that in the United States, every coal plant kills about 80 people a year. 

I do want to ask one specific question about coal before we start, you know, drifting on to the other topics. And you know, you talked about the sheer capability they had for building coal plants. And I will say briefly, before asking the next question about coal plants, I would say they can build, they’ve proven they can build everything at extraordinary scale except nuclear plants. Foreshadowing. We’ll talk about that one. 

But one of the questions around 2010, for the Olympics, one of the things they did is they shut down all the coal plants in the vicinity and interior of Beijing. Have you seen that as a clear pattern? I would assume that those, a bunch of those or the smaller, older plants as well. But what is your observation about urban coal plants and near urban coal plants over the past 14 years? 

DF: That’s been an ongoing trend. Every time there’s a major event, not just the Olympics. There’s an APEC meeting, there’s the World Youth Games, or any type of international sporting event that’s happening in a major Chinese city, you get miraculous blue skies before and after the event. It’s not just the coal plants. Pretty much all the heavy industrial production that has any type of emissions will be ordered to take a break for a week or 10 days before the event starts. that’s just something that’s been going on for years now. It was utterly necessary when I arrived in 2011, 2012, because the sky was mud. 

Every day in Beijing now you have good days and bad days, and you have quite a few good days actually, but they’ll still do that. They’ll still order the industrial producers to take a break for a week or 10 days so they can have some nice blue skies. Beijing has actually removed all of the urban coal plants. I think they only have a couple of gas plants and they have imports from other provinces. I know they have some local coal capacity that they can go to if they need to. I think it happened last year or the year before. There was a headline that said Beijing has an operating coal plant for the first time in seven years or something like that, because it was very cold, they had a cold snap, something like that. But Beijing has gotten rid of the downtown coal, so to speak. 

Shanghai has some coal near downtown. We have two major coal plants in Shanghai that are close to where we are. I was in a tall building, my old office building actually. If I looked in the right direction at the right time of day and the weather was clear enough, I could actually see one of the coal plants from downtown Shanghai, Jing’an Temple neighborhood, which was very surprising for me to realize. But the other one, so that’s one, the other one is Waigaoqiao. So Waigaoqiao kind of made headlines for being the most advanced coal plant in the world when it opened back in 2008. It was the ultra supercritical coal plant that had the highest efficiency, the highest burn-up rate, the lowest particulate emissions, everything, everything for the time. And that one is still operating and providing quite a lot of Shanghai’s power. 

So we do have urban coal plants here in Shanghai and many other Chinese cities do have urban coal plants as well. Beijing specifically has managed to get rid of its urban plants. 

MB: Were they explicitly targeting the ones with the highest local populations and hence highest health impacts? When I was speaking to India last year, I did a seminar series on decarbonization with India’s Smart grid forum, over 13 seminars. When I got to coal and gas, I said shut them down as fast as possible. But what that means is look for the most efficient ones. Keep the most efficient ones, look for the least efficient ones, look for the ones closest in the densest populated areas and create a road map that is a strategic roadmap over 15 or 20 years to shut them down by degree of harm. 

DF: An issue here is that pretty much all of eastern China is densely populated. There’s hyper-densely populated and there’s very densely populated, and there’s densely populated. Those are your three options. There’s nothing below that. 

MB: It’s true. It’s funny because every once in a while I get into a bun fight with somebody about rail electrification because the United States has no freight rail that’s electrified and hence Canada and Mexico doesn’t either. Meanwhile, the rest of the world has. India got to 98% this year. China’s at 75%. They keep telling me, well, China is very different from the United States. I said, no, they have almost exactly the same square kilometers. China has the Himalayas in the west. It has Harbin, which is in practically arctic conditions in the north. It has steamy tropical conditions in the south. Regarding the population density in the far west of China, there’s lots of places where there just aren’t that many people.

Yes, there’s a lot more in the southeast. The bottom two-thirds of China and the eastern half of China is very densely populated, as you say, but there’s a lot more of the country. 

DF: I could, I could go on a tangent about high speed rail and that’s another awesome topic, but I think it’s outside of the scope of our conversation today. 

MB: More trillions of passenger kilometers by high speed rail in China than by aviation. I’ve done global studies on the major continents for the ratio of passenger kilometers and freight kilometers by different modes. It’s fascinating the variances. China is just so far ahead in so many of those key metrics and the trajectory is so good, which is why I’m very optimistic about a lot of stuff because China’s trajectory is so good on so many things. 

So we were starting to introduce natural gas. I’ve been asserting for years that China uses coal the same way the United States uses gas. It’s peakers. China has coal, as you say. It’s always been interesting to look at the annual utilization factors. The United States has actually gone up a bit in 2022 and is at 57%. Its utilization factors for its natural gas plants are above China’s utilization factors for its coal plants. I’ve been waiting for the capacity factors of coal plants in China to start edging down towards 40%, then 30%, then 20% and to see what it does specifically.

Have you seen strategies for what happens when the capacity factors of coal plants are down around 20 or 30% in terms of keeping them going as capacity because they all just disappear? Then what are you going to do? Do you know what China’s plans are? 

DF: There’s going to be a capacity market. We have a capacity charge that was added two years ago. That was added because they had been complaining already that they weren’t earning enough money with their low utilization rates. It’s not a market, they don’t compete for this yet. It’s just a payment, just a compensation mechanism to ensure they get enough money there. They’ll also be allowed to fight in the auxiliary services market, right, for some type of load following flexibility, things like that. But you know, I’m not sure any of that is much help if you’re down to 20% or 30%.

If you’re at that point it’s going to be big capacity compensations, very large capacity compensations and if the market is functioning the way it should, they will be large. That’s how the capacity market is supposed to function. Right now it’s not a market so we don’t have to worry about that yet. Batteries get their own compensation, pumped hydro gets their own, natural gas gets their own, and now coal gets their own. They’re not competing against each other for this capacity payment, they just all get it. When that turns into a market and they fight each other for that, we’ll see economic forces come into play and the prices will change according to who’s able to do it best. 

MB: Because you’ve done so well with your predictions for 2024, what year do you predict the capacity market will turn on in China? 

DF: Not before 2030. I don’t see that before 2030 because we need to build the power market first. The ones that are needed already, things like load following, certain types of, I mean demand response is not ancillary service, but that’s also launching. We have early versions of some ancillary services, but they’re quite immature and it varies by province, what’s available in each province. We’re still building the power market, a cross provincial integrated unified power market. And when that is constructed, then you have real time pricing data from the power market that can start to inform behavior in the ancillary services market or in a capacity market. 

The deadline is 2030 for that unified national power market. Somewhere in the 2030-2035 five time frame is when I’d expect to see these other types of markets become more mature and functional because they can build on the foundation of that power market. 

MB: Now amusingly, of course, that 2030 for the power market is going to mean that they have basically a continental-scale power market and the United States and Europe won’t. 

DF: Well, Western Europe is pretty large, right? Nordpool is fairly large, but yeah, the United States? The United States is very unlikely to have that type of coordination and China will have regional grids that will have bridges to other regional grids. It’s not going to be a perfectly constellation of interconnected nodal points across the entire country. It will still be based on provincial grids and regional grids and those regional grids will connect to other regional grids and they’ll have a national grid on that basis. But it’s not going to be perfect interconnection. 

MB: There’s never perfect interconnection. Let’s talk briefly about natural gas. It doesn’t do much in this space. Regarding the pipeline to the ‘stans and to Russia. I’m trying to figure out what the status is because I hear different things in different places about its operational status. How much natural gas is flowing into China from where? In the form of pipelines, from the ‘stans versus LNG. [David Fishman visual reaction.] Wrong person to ask. 

DF: Coastal regions have LNG imports? The farther you are from the coast, the less gas makes sense in terms of gas to power. Coastal regions will have gas-fired power plants close to LNG import terminals and I know they bring in a fair amount of LNG. Again, like 3 or 4% of the mix for China is gas. Bringing in a fair amount of gas to those coastal terminals, how it compares to the pipeline gas in terms of volume, I wouldn’t know. I know if it’s coming in, you know, if it’s coming in through Turkmenistan or Myanmar, it’s coming into western China. Where is it going? Is it being used maybe for industrial feedstock out in certain industrial facilities out west?

If it’s coming in from the north, you’ve got your Russian gas, maybe you’re using that for heating up in the north. Gas heating and gas cooking. That’s much more common up north in northern China than southern China. We use electricity a lot more down in southern China. Your seaborne gas is going to be for power. But in terms of volumes and in terms of, you know, relative sizes and outlets, that gets out of my wheelhouse, unfortunately. 

MB: There’s been one interesting thing that occurred in 2024 that surprised a lot of people. China has more electric vehicles of all types than any other country in the world, including large trucks. But right now, battery-electric for long distance trucking is not yet fit for purpose. China has had a lot of diesel semi trucks for highway freight haulage. What’s happened in the past couple of years is that they’ve been pivoting to gas from the ‘stans because it’s about 20% cheaper than diesel. That’s been part of diesel’s collapse. Firms like Daimler, which had been building and selling trucks in China, all of a sudden their market in China for their heavy trucks has disappeared. 

Now 8% of the vehicle fleet for heavy longer distance trucks is powered by LNG, which is differently problematic because LNG slippage from methane burning engines is a challenge. It’s interesting to see where certain classes of energy imports are displacing other categories and the implications that has. I’ll just say western manufacturers and vehicles are having a horrible couple of years. They made all their money off of China and now they’re losing market share in China. 

DF: Except Tesla, right? If you figured out what you were supposed to do in the market and you figured out what the environment wanted, which was going to be an attractive next generation electric vehicle, then you can come over and build in China and still sell a bunch of vehicles in China. And if you’re a GM and you spent years, you know, like ringing that golden goose of, you know, they made an investment in China, right? They set up a joint venture and they reaped a lot of benefits from that gold goose for years and years. But they unfortunately didn’t really pour it into the next generation of vehicle technology that was going to be really attractive and compelling, which was going to be electric vehicles. And now you can see their sales have fallen off a cliff. 

So that’s kind of what the future seems to be. Either you figured out where Chinese vehicles were going or you didn’t. If you didn’t, then you’re done. I’m not an EV guy, but I hear what the EV guys are saying and that’s what they’re saying. 

MB: Tesla sales actually declined globally in 2024 by 1.1%, but they grew in China by 8.8%. We’ll just avoid all that cultural stuff even though it’s fascinating. I lived in Singapore for a couple of years and I spent a lot of time talking to mainland Chinese people, Singaporean Chinese people. Fascinating variances in culture. 

Okay, so natural gas, not a high percentage. I will say that I live in a province which is betting on LNG exports to China and I think they’re idiots. 

DF: Well, long term there will be some use for LNG imports in China. Some of the long outlook, deep decarbonization items will perhaps see a space for LNG out to 2040, 2050, but it’s not going to be a long term stable growth opportunity and they’re going to be trying like hell to get it out of the system. 

MB: So, David, we have to talk about nuclear. Among other things, you’ve intimated to me that you don’t really agree with my take on nuclear in China. I have a hot soft spot for pumped hydro and wind. You have a soft spot for nuclear. Tell me about why you have a soft spot for nuclear in China and then tell me what your perspective is. I’ll share mine and we’ll see where we agree on stuff. 

DF: Full disclosure, I started my career in China in the nuclear sector. I spent the first five years working mostly for American companies, trying to help them sell equipment and engineering services to Chinese nuclear companies. It was the AP1000 supply chain, so Westinghouse came over, they sold some reactors to the Chinese side, and then they told their whole supply chain, good luck, go sell to the Chinese. There was space for a specialized consultancy that I was working for at the time to help those companies to do business in China. I developed a bit of a soft spot for the Chinese nuclear sector. Now, of course, in 2014, when I entered the sector, the outlook was pretty aggressive and the forecasts were pretty large. 

Even at that point, we could kind of tell that there was a disconnect between the forecasts and the reality that things weren’t getting built as quickly as they would need to get built in order for some of those numbers to come true. Then the AP1000 was taking a really long time to build, and the French EPR was taking a long time to build and they didn’t want to build any more old generation reactors. They only wanted to build new generation reactors after Fukushima, but they didn’t even have any new generation reactors operating to use as reference plants. There was this period for about five or six years where the numbers, the targets, the objectives stayed very optimistic and rosy and yet no new starts were happening at all. 

It was going to be impossible to meet those targets for sure. Along the way the Chinese domestic technology came to completion, the Hualong 1 reactor. After 2018, 2019, the trade war was heating up with the United States. Chinese companies found themselves on the entity list. They were sanctioned. They didn’t really want to be using so much American technology anymore. The French reactor had taken ages to build and it was over budget, over schedule. Just a bit of a mess. And so we’ll use Chinese technology from now on. We’ll, we’ll shift over to the domestic technology. 

Oops. We don’t have any operating reactors to refer to. We started building one in 2015. We still don’t have a good demonstration reactor to refer to. Okay, we keep waiting again. So around 2020, 2021, finally the Chinese tech completes. It’s operating well, it seems to be on track. Let’s start building more nuclear again. They’ve been saying for years, ten reactors a year. Okay, great, we can start building ten reactors a year. We finally have a technology that we like, that we think is scalable, that you know, we have control over the supply chain for. And so we’ve seen 2022, 2023, 2024. They approved 10 more reactors each year. Finally, after a decade of tribulations, they’re on the schedule that they hoped to be at or that was described back in 2018-2012-2012-2013, 2014. You’ve lost a decade though. If they had stayed on that schedule, they’d have 100 more reactors at this point that they don’t have. 

So what has changed in that time? In 2012-2014, nuclear had a very clear position. It made a lot of sense exactly what role it would be playing in 2012 in the Chinese energy mix. You didn’t have your options for tons of wind and solar and batteries. Those were kind of pipe dreams in 2012 or 2013. Now nuclear has lost its window a little bit in China. It’s gone from what was probably going to be a pretty healthy sized chunk of the backbone of the firm dispatchable capacity to what is looking more like a niche role, not a non-existent role. It’s going to be a lovely small role. 

It has a useful function, if you’ve seen some of those total system costs estimates for wind, water, solar storage systems. There’s that hockey stick curve when you get up to like 80 or 90% penetration. It gets really expensive to decarbonize the last 10% of your grid, something like that. That’s how I see nuclear helping China now that it helps chop off the last 10% of that hockey stick curve. And so you can have a very high penetration wind, water, solar grid and the last little bit is provided by nuclear, which prevents the system costs from rising to infinity. It’s unfortunate because I think a decade ago the role described for nuclear would have been a lot larger than where we are right now, you know, if they keep building 10 a year, and I do think they’ll be able to build 10 a year. China’s very good at building its big infrastructure when it has control over its own technology. 

It’s got its own IP, it’s got its own producers building domestic technology. I think they’re going to crank out Hualong 1s at a good pace for a good while. But what does that even mean? If we do 10 plus 10 each year? Okay, great. We get to, you know, 200, 250, 300 gigawatts over three decades. That’s a quarter of the coal fleet. If we adjust for capacity factors, that’s half of the coal fleet. Okay, that’s pretty good. Right. But we’re getting, we’ve offset a good chunk one to one. You can offset coal plants with nuclear plants one to one. And so that’s useful for sure, but it doesn’t solve your problem. And then in the greater zeitgeist of the conversation around nuclear, I do not think that most countries can replicate what China does for nuclear and I’m well aware of this. 

When I describe what China wants to do and nuclear is already undershooting China’s expectations and hopes originally for them a decade ago, I think it’s still going to play a valuable role. It’s going to be a niche but important role. I really struggle to see how other countries can really make a crack at it. If you don’t have the industrial base, if you don’t have the HR depth, if you don’t have the history of building these large projects, I think it will just most likely cause tears for you. And I know my friends, my nuclear fans in Australia don’t want to hear that and I know my nuclear fans in any country that doesn’t have a mature nuclear industry already don’t want to hear that. 

But if China can only barely make it work, I struggle to see how a lesser industrial economy can make it work. 

MB: I’ll add a bit of data on that. China’s first nuclear reactor went online in the 70s. It’s a 50-year program. Wind and solar really started in the 2000s, late 2000s, and so it’s a 20-year old program and now we’re seeing 300 gigawatts of wind and solar every year and 1 to 3 gigawatts of nuclear every year. China’s on track to hit its EV sales targets 10 years early. The way I represent the wind and solar targets is they blew by them by so much in 2020, they pulled the 2030 targets back to 2025 and then they met them in 2024. That’s just the reality of wind, solar and EVs in China. 

For nuclear, however, they still haven’t in 2024 hit the 2020 targets, their plan for the next year isn’t going to hit the 2025 target, and all the stuff that’s in construction and planned through 2030 is going to be 40 gigawatts off the 2030 targets. It’s interesting that China hasn’t changed its targets. It’s still got these unrealistic targets for nuclear. And the last thing I’ll say about it is the 2025 targets were only 2% of capacity and they haven’t met 2% of capacity with nuclear. It really does underperform. I’m with you. 

I started doing my comparison of wind, solar, and nuclear for China because China had the ability to create the conditions of success for scaling nuclear and it failed to do that and I don’t see that it succeeded yet. The Hualong 1, if they only built that from now on and they’ll have probably achieved all the conditions for success that I articulate. But as it is, hopefully they’ve finally gotten over trying to build an export market for nuclear technology. 

DF: The export ambitions was the Chinese domestic companies trying to find something to do while they were waiting for those domestic demonstration reactors to finish and they weren’t allowed to build new ones. They weren’t allowed to start until you have an operating reference reactor. They had to find something to keep themselves busy with. So they tried to build an export market. So they tried to find some companies to buy and I don’t know if Argentina is going to end up buying one or not. They signed a contract but who knows what’s going on in Argentina these days and other countries around the world where they thought they might have had an export opportunity. 

Besides Pakistan I don’t know where else is going to really want to take a chance on that right now. So I do think they’re going to focus in and just build a bunch of Hualang 1s for the next five or ten years. And you know what, the ones that were approved in 2021, if things, you know, move along the way, they have been able to build these in the past, then 2026, 2027, 2028, that’s when we start seeing the fruits of the labor, so to speak, peak. And hey, if it helps the 2030 carbon peak stay a reality, right? So we say 2030, we peak carbon and then what? How do we stop it from becoming a plateau after 2030 and actually start drawing down? 

Well, if you could bring on a few nuclear plants that one to one allow you to shut down a coal plant, that’s how you actually draw down after 2030 instead of just plateauing after your carbon peak, like even that, you know, one or two or five, if you’re offsetting a coal plant one to one, hey, you’re drawing down through the2030s. I think that’s a useful feature now for me. 

MB: People always accuse me of being against nuclear and I’m not. I think It’s a great 1970s technology that’s very slow to build as it has high risks in construction and costs more than wind, solar, batteries, and transmission. You know, just the nature of the beast. But I also say I’m happy for every nuclear reactor that gets online and every nuclear reactor that keeps running because it is low carbon, low pollution, safe generation. 

DF: But I’m glad it’s there as long as I don’t have to build or pay for it. 

MB: Yeah, I just am gobsmacked that people think that if China is struggling, they have the conditions of success to build nuclear. 

DF: I’m with you on that part. If China is struggling or at least encountering headwinds in building a tricky large infrastructure energy thing in 2025, it’s very bearish for you or any other country and your chances to do the same.