SW CHINA OFFICIALS SIGN MOU FOR MODULAR NUCLEAR REACTOR

C O N F I D E N T I A L SECTION 01 OF 02 CHENGDU 000196 SIPDIS E.O. 12958: DECL: 9/18/2024 TAGS: ENRG ETRD EINV PGOV KNNP CH SUBJECT: SW CHINA OFFICIALS SIGN MOU FOR MODULAR NUCLEAR REACTOR CHENGDU 00000196 001.2 OF 002 CLASSIFIED BY: David E. Brown, Consul General, U.S. Consulate General Chengdu. REASON: 1.4 (d) ¶1. (C) Summary: Chinese officials from the Future Nuclear Energy Technology Application Institute (FNETA) recently signed a memorandum of understanding (MOU) with U.S.-based NuScale Power to work toward an agreement to build modular light water nuclear reactors (LWR) in China. Chengdu officials pushed aggressively for the MOU, rolling out the red carpet for NuScale officials, paying for their travel to China, and arranging a meeting with Chengdu's Deputy Party Secretary. Chinese officials told NuScale executives that they favored the company's design over other advanced reactor designs like the pebble bed reactor. End Summary. China's Push For Deal Catches U.S. Firm By Surprise -------------- -------------- ¶2. (C) Chinese officials from the China Guangdong Nuclear Power Holding Corporation (GNPC) contacted NuScale officials in mid-August to express interest in forming a partnership to build nuclear plants in China using NuScale's modular design. GNPC, together with FNETA, paid for NuScale executives to travel to Chengdu and Beijing to discuss the possible cooperation in nuclear power development. The Chinese officials told CEO Paul Lorenzini and Chief Technologist Jose Reyes that they were interested in licensing NuScale's design for direct heating, non-power applications in China. While FNETA is a Chengdu-based company, the reactors would be built throughout China if a final agreement were reached. FNETA suggested if an agreement were reached, they might have exclusive sales and distribution rights in China, and NuScale would receive royalties. ¶3. (C) NuScale officials told CG on September 8 that they did not know what to expect when they arrived in China, but had been warmly welcomed by a number of officials including, Chengdu's Deputy Party Secretary Tang Chuanping. Lorenzini said that the Chinese side was pushing hard to sign an MOU with NuScale before the executives returned to the United States. Chinese nuclear officials said that they would like to use the NuScale design rather than a pebble bed reactor, suggesting to Lorenzini that Chinese nuclear officials had gone through a selection process and the pebble bed design had lost. Lorenzini and Reyes had not come prepared to sign an MOU, and both questioned Consul General (CG) about how to continue to discuss a joint venture without committing to too much too early in the process. (Note: After meeting with CG, NuScale officials signed an MOU with FNETA on 8 September to work over the next year to see if an appropriate joint venture agreement can be worked out to the benefit of all parties. End Note.) Lingering Concerned About Intellectual Property Rights -------------- -------------- ¶4. (C) NuScale officials expressed concern to CG about how their intellectual property (IP) would be protected in a joint venture agreement with a Chinese company. Lorenzini worried that other companies in China might acquire his company's designs and compete against NuScale in the Chinese market. At the same time, he thought that a company, or group of companies, wanting to steal or reverse engineer NuScale's IP could probably do that based on publicly available information. Lorenzini expressed confidence, however, that Chinese companies would not be able to acquire the Reactor Excursion Leak Analysis Program (RELAP) safety codes. He had made clear to his Chinese hosts that the safety codes would not be part of the technology transferred in any potential joint venture. Overview Of NuScale's Reactor -------------- ¶5. (SBU) NuScale, founded in 2007, has developed a 45 megawatt (MW) LWR that Lorenzini claims is safer than many other nuclear power plants, can be built almost entirely offsite, and can be scaled to produce as much as 540 MW. Unlike other reactor designs that rely on cooling pumps to circulate water through the plant to control the temperature, the NuScale design relies CHENGDU 00000196 002.2 OF 002 on natural circulation from a convection process. Lorenzini said this makes their design safer by eliminating a possible failure point in the cooling system. The modular reactor could be built at existing factories in the U.S. or potentially at factories in China if a final agreement is reached. The reactor vessel measures about 65 feet long and 15 feet in diameter, and once built, can be transported via barge, truck, or rail to the power plant for installation. This greatly speeds the process of construction and helps keep down cost, according to Lorenzini. ¶6. (SBU) The advantage of NuScale's design over some other advanced reactor designs, says Lorenzini, is that it is commercially viable now. He says that the reactor could be used in both commercial power applications and in direct heating. Furthermore, the reactor design should have the ability to withstand large seismic events. The company is currently funded by venture capital, but expects to receive funding from the Department of Energy, beginning in 2011. ¶7. (SBU) COMMENT: The Chinese government is moving forward with plans to deploy nuclear reactors inland (currently all of China's reactors are on the coast). Although Chinese officials have stated they are interested in using NuScale technology for industrial applications and not large-scale power generation, potential risks associated with the development of China's indigenous pebble-bed reactor technology may prompt Chinese utilities to look at other reactor options that can used in China's earthquake-active interior, such as the NuScale technology. END COMMENT. BROWN