Rethink Energy 231: US nuclear strategy, China's future manufacturing dominance, BESS exports up over 400%

Speaker A: Hello and welcome to the Rethink Energy podcast. I'm as of your host, Andries Vantanaar, and this is actually the final episode for the podcast based on weekly news. As you've probably heard in the previous episode or read in the previous two issues of Rethink Energy, we're actually shuttering the publication because just wasn't making enough money to be frank. Now I will still be available for some time to contact for questions and I'm actually planning to continue the podcast just based, based on the occasional interview maybe once a month, I don't know, but I've definitely got some in mind. And we're also planning to publish one or two final reports. Having said that, I better get to the weekly news. And actually it's, it's not the past week, it's the week before that because, uh, you know, since this is the final episode, I just didn't feel the need to rush it out. And indeed, the topics that I covered in the final issue of Rethink of the Rethink Energy newsletter naturally took a sort of longer view on various things rather than just being purely short term. Here's the weekly news. So the topics I'll be covering in this episode are, uh, why I think that nuclear power will come to dominate the US Energy strategy. And I'll be looking at why China's, uh, industrial dominance will be going from strength to strength in the coming decades, which kind of isn't a surprising prediction to make. But it'll be a very different country that dominates global manufacturing in the future compared to the one which already dominates global manufacturing today and the reasons that China will dominate. And having covered those two, I'll go into China's battery exports and maybe the bit on the solar industry, but I'll just jump into the nuclear piece on the US There's a kind of ironic or maybe actually very appropriate parallel between Rethink Energy wrapping up and where we are in the energy transition. And maybe it's not coincidental at all. The investment environment has been kind of bad for two years and certainly the growth of the renewable energy industries, uh, has been astronomical in that time, but it's kind of plateauing now. And in the case of the U.S. of course, it is in a pretty bad way because President Trump has returned. And really this is just a prediction that's sort of based on what's not going to happen. It's based on the fact that the US has the Democrats come in and they try and shut down the conventional fuel sources. You know, the Coal and gas. And then the Republicans come in and they try and shut down the renewable energy industries. And to a considerable, to a considerable extent both parties succeed and they each get uh, uh, one of the three branches of government every two years or so. It's this constant, uh, this constant political windmill. And so both the old conventional fossil fuel industry and the renewable energy industry, they both have a negative policy environment at the same time. And so this is why uh, nuclear power is going to come in as sort of the last man standing. And I could expand on that. Like I wrote, I wrote an article on Poland and its plans to develop nuclear with Bechtel and Westinghouse, uh, a couple of months back now probably. Uh, and I kind of went through every single alternative energy source. Uh, and you know, they don't really have hydropower there because of the geography. Solar power will never be more than a auxiliary source of power. Again because of the geography. It's kind of, it's moderately cloudy and it's mostly just too far north from the equator, so it's not really there in winter when it needs to be. Um, and then you've got wind power and you know, if it's good wind conditions in Poland, then it will be good wind conditions in all of these other European countries that are also building lots of wind. So it's kind of redundant if you do that. And so you can kind of go down the list and say that nuclear is left as the only power source that's both clean and actually is a substantive basis for your power grid and renewables. Obviously you can make them substantive, you can make them reliable with enough energy storage. But then that doubles or triples the capex cost. 3 hour batteries doubles the capex cost of wind or solar, uh, pumped hydro, uh, to give it like the ability to uh, tough through a week long period of dunkelflauter, bad solar or wind conditions that would maybe triple it. And then you're instantly, when you account for the capacity factors, you're instantly on the same sort of level of capex, uh, between nuclear and renewables and suddenly nuclear's main issue is not so bad anymore. I mean let's just look at the numbers. So all of these recent western uh, nuclear builds that have had cost overruns, they're basically $15 billion per gigawatt. But that is a gigawatt of nuclear that pretty much runs constantly. It has a 92% capacity factor. So now let's compare to solar. First off, Solar has a 15% capacity factor. If you're in Say the south of France, actually maybe it's north Spain for that. So let's say you're in Poland, um, It's more like 12%. So suddenly you need about eight times the solar just to have the same power output. So it's not $1 billion for 1 gigawatt of solar. Suddenly it's $8 billion for 8 gigawatts of solar to have an equivalent power output with the nuclear. And then if you add the batteries then it's actually $16 billion. And if you add pumped hydro, maybe it's 20 billion or something, I'm not really sure on the pumped hydro depends on what storage duration you need. And suddenly the capex cost is actually higher. And of course like, well nuclear does have some fuel cost, it's not very high. Um, it has a 10 year lead time. Like when you build renewables it's ready in six or 10 months when you not counting the pumped hydro. Pumped hydro is a few years. Um, when you build nuclear, well you have to tough it through 10 years before the damn thing actually comes online. Maybe even 20 years in the case of Hinkley Point Seal. That's, that's not how it should work. But anyway, I'm just, I'm just sort of explaining why nuclear uh, power is having this bizarre renaissance. And the reason it's bizarre is of course renewables usually means intermittent power. Nuclear power has kind of been unpopular including uh, in rethink energy at uh, least a few years ago because it was expensive. And yet once you introduce the need for both short term duration storage and long term duration storage to renewables, when you view renewables as something that needs to be firmed and to be the basis of the power grid instead of just a counterpart to coal and gas. With coal and gas uh, kicking in overnight and whenever the wind isn't blowing so much, uh, then nuclear kind of comes back into its own. And so, and that's what's happening. Uh, the wind and solar is outscaling the coal and gas, especially since the coal and gas is being removed entirely in certain countries such as Spain. So suddenly it's not just wind or solar. Oh, wind and Solar has a $40 per megawatt LCOE levelised cost of electricity. Okay, but we need to know the storage as well. That's why nuclear is coming back with Poland, I was trying to explain why nuclear can be very useful in general. Let's say you're China, right? You have a desert to build the solar in. You have a windy plateau. Also in that desert to build wind in. And then you have enormous amounts of clean, uh, dispatchable energy storage in the form of the Sichuan and Yunnan provinces where all those rivers run off the Tibetan plateau. So you've got enormous amounts of hydropower. So you can just build renewables uh, there. But then if you look at the south of China and you do want to build some of your power generation there because of the, otherwise you have to build transmission lines all the time. Time, which they do. But you know, in the south of China, that's where on the coasts, that's where they built their nuclear power. And then so, so renewables are kind of the contrast between renewables and nuclear. I think it depends to a significant extent on the geography. But then in the US which is a pretty big market, it depends on policy. Uh, for some reason both parties love nuclear. Biden brought in the policy to uh, double the U.S. nuclear fleet from 100 gigawatts to 200 gigawatts. Trump increased that to 300 gigawatts with a proximate target of, was it 35 gigawatts. That has to be brought online by 2035, which is only 10 years. So they need to get it started pretty soon. So that's pretty big. And also it has taken the interest of the data center hyperscalers, which are the biggest new source of power demand on the grid, especially in the west. And of course they actually have the money to build nuclear power plants. Maybe not a $15 billion 1 gigawatt reactor. $15 billion with a 10 year lead time is a bit much for any private player. Uh, but that's why they're looking to SMRs. And so bizarrely enough, after this long journey where we're constantly saying renewables are getting better and cheaper and more reliable and more powerful every year, Ah, now we're back, uh, to nuclear power, which was last a major industry 30 years ago or 40 years ago, before Fukushima, before Chernobyl and before Three Mile Island. Ah, sort of stagnated the industry. It's really fascinating to see nuclear stage any kind of comeback, uh, especially since we have this sort of marketized power system where something that is relatively cheap and quick to build and then you can mess around on the power market with batteries. That is kind of what the power market is suited to. And perhaps also gas peakers. Then you've got nuclear power where really you kind of want the state to be taking an interest in the financing, providing finance for that. It's just so big that the state should do it It's a strategic asset obviously. It just obviously is. And look at the big uh, success stories for nuclear development. It's China, it's Russia and also it's uh, South Korea, which South Korea is sort of Western but in the power sector they're still relatively traditional. So very state led, uh, khmp. Um, I think it is. So the state shoulders a lot of the burden and there's no particular reason why it shouldn't. I mean, but that's, that's getting political. Also I'm going to talk with Ed Ho again on the second podcast with him on nuclear power in a bit. So I should stop rambling about nuclear. I should leave all of these thoughts for, for when I'm chatting to him. So I'll just move on to the next topic. Uh, but yes, it is quite ironic that um, the reason that the US will default to nuclear is just because they keep on sabotaging everything else. But anyway, another topic I covered that had a very sort of broad uh, remit is China setting the stage for permanent industrial dominance. And of course that's not news. It uh, already does dominate global manufacturing. It recently got to about 30% of global manufacturing output. Personally I think it will reach uh, maybe 40% in 10 years from now. And so you could say, well we don't need you to tell us in 2025 that China is dominating global manufacturing. The interesting part is why it will continue because the country that will have 40% in 10 years is going to be very different to the country that has 30% now or 20% 10 years ago. And even the reasons will be different because of course uh, China is actually no longer uh, cheap in terms of wages. Its wages are actually higher than Mexico's. So it's not, you know, it's sort of medium income instead of low income. And its technology gap with the west is constantly being eroded. You can track it. If you want to track uh, China's technology gap, you look to a few products that they're now localizing. Well, there are majority of global deployments of industrial robots. I mean automated manufacturing, things like uh, what are they called, dark factories where uh, you know, sometimes the factory is operating with no lights on because all of the action is being performed by robots. Uh, another type of robot that China is leading in is the, the sort of humanoid or uh, drones or the dog shaped robots, all of those. What else are they leading in? Well obviously uh, one. So, so they may be a higher income country now, but one type of cost is going to absolutely stay the same, which is the energy cost, uh, I say will stay the same. I'm not totally confident in predicting it, but it's happened so far because right now China is very, very rapidly adopting renewables. It is responsible for the absolute majority of renewable deployments in the world. At least briefly. It will probably subside back to only being one third. It's just recently acquired 1 terawatt of solar power deployments, 1.1 terawatts. Actually. It had a policy, uh, deadline with the switch to the power market, uh, liberalization. And so in May they actually built 93 gigawatts of solar power, uh, and it'll go back to 20 gigawatts a month for a bit after that. But that's more than the US installed in the past two years. In one month they now have 600 gigawatts of wind power compared to like the US having 150 gigawatts. So in the past China had cheap energy because it was hydropower plus coal power. You dig the coal out of the ground in Xinjiang or Gansu province, Inner Mongolia, Shaanxi. Ah, and then you just put it in a coal plant right next door. It's very cheap because it's coal. What's remarkable is how they've managed to adopt so much renewable energy without really changing their energy costs at all. I've looked at things like the power market price settings in Xinjiang four years ago compared to Xinjiang today. There's been so much renewables adopted in that period, the prices have basically not shifted. So yes, on uh, the surface, China will go from being an industrial superpower to being an industrial superpower. So that's not interesting. But of course the cheap energy is going from 1200 gigawatts of coal, an enormous coal fleet. That's like the uh, coal alone is, is what, 20 times the size of the entire UK grid. Uh, it's going to change from that to wind and solar and hydrogen and batteries and hydropower pumped hydro and it will still have the same price. So the thing on the surface will be the same, but how they get there will have changed a lot. Uh, just like why their manufacturing is so cost effective and cost competitive. That relies less and less on the people themselves being frankly impoverished and working 60 hours for low wages. That's constantly changing to just, they actually have the biggest factories, they have the most automated factories, they have supply chains that literally floats down a river to the big ports on the sea on the coast. They have the biggest power stations, they have the biggest, uh, transmission lines. Uh, let me, let me have a look at this. Um, so just a few stats, if you feel the need to hang this narrative on some numbers, which I do like to do that. So China invested in total in its transmission and distribution networks 142 billion in 2020. That grew to 216 billion in 2023. So in three years it grew by 50%. Now I'm extrapolating based on some state grid stats that this will rise again to 270 billion in 2025. So that's growing by what, another 20% in, in just two years. If you do a sort of nominal GDP comparison or nominal expenditure comparison between China and those transmission and distribution investments and you compare that to Europe and the US off the top of my head I think it would actually be pretty similar per capita. But then of course you remember that everything is cheaper in China. So they're building four times as much transmission lines per dollar as uh, you would get for the same price, um, in the US or the eu. And so China's investment in these high voltage AC lines, these ultra high voltage DC lines, it's four times as much as the west is doing on a per capita basis. And that can't be purely explained by the west having no growth because yes, the EU is stagnant, but the US is growing in terms of data center demand at least. And uh, even if they're stagnant in terms of total power demand, uh, they are shifting things over to being electrified and they are um, changing their power grid into renewables. So they should really be still investing a lot regardless. So China is going to continue to dominate global manufacturing, but it'll be quite a different China that does this. It won't have a, the technological gap is shrinking. So today I would say that the manufacturing of things like really high grade things like pull bearings, uh, electronics grade polysilicon, carbon fiber, you can look those up if you really find this interesting. Those are the types of products that are being reshored, uh, what's it called, localized is what they call it today into China Electronics grade polysilicon. They always used to import from Japan and Germany. They probably still are today, but they're starting to build their own electronics grade polysilicon factories. Uh, they tend to be 5,000 tonnes in size and this is actually an offshoot of the solar industry. So 15 years ago they built a fleet of polysilicon factories using the Siemens process to produce 6n purity polysilicon. Uh, then since then they've upgraded that to 8n purity and 10n purity for mono perc and then N type. And now they're able to approach the 12N purity and 13N purity that you need for electronics grade. A couple of years back they halved the price and doubled the production capacity of carbon fiber. I say a couple of years. It's probably only one year ago. Obviously those are very rough numbers because I haven't read up on it uh, in a year. But these are the kinds of high end products that, where you can actually see the shift from a product that China can't make and has to buy off the Westerners still to one that they actually now can make. And pretty soon there's not going to be much left that the west still has a uh, technological advance, uh, on. It'll be things like submarine stealth technology. It'll be things like airliner, uh, manufacturing. Airliners are very, very high grade products. It'll be things like microchips, although ironically, uh, that's because you know, that's in Taiwan, which is kind of Chinese in its own way. Uh, and, and so there'll just be these very few, uh, very elevated products that, where we can still find a Western technological advantage. You could say that we have an advantage in the universities, but well that's also shrinking. And also who cares if it's not being actually made in the real world, uh, what else is there? And then of course we now have things where China is ahead of us technologically not because of abstract research, but because they are the ones who make it. And I'm thinking of batteries, of course. So that's my commentary on China. You know, maybe they'll even have a shrinking elderly population instead of this young uh, population. Although uh, we're living in a bit of a glass house on that issue ourselves. But even with a smaller population with, you know, it'll go from a country with a large young population that's poor working for uh, low wages to a country that is full of old, uh, quite wealthy people. But they'll still dominate manufacturing. They'll still have uh, enormous amounts of cheap manufacturing, but that will be done by uh, robots and renewable energy instead of coal. Yes, you could say it's not very interesting or surprising that um, China will still dominate manufacturing, but it'll be dominating it for kind of different reasons under the hood, like switching out a 1200 gigawatt fleet of coal power for renewables is uh, you know, that represents trillions of dollars of investment. And um, yeah, I do find it very satisfying that just as I wrap up writing about uh, Renewables. And of course I was the solar writer back when we had a few more writers in the, in the uh, publication. I find it very satisfying that China managed to um, surge across the finish line and reach 1 terawatt of solar capacity, uh, before I finished. Speaking of finishing, it's almost the end of the podcast. I just want to say one last topic was China's battery exports have apparently, I almost can't believe it. They've apparently grown 436% year on year. Not exports, actually, orders. So Chinese energy storage OEMs have received 144 gigawatt hours of orders, uh, from overseas. So this will be exports in the near future. And that's just in the first five months of 2025. Now maybe people weren't placing forward looking orders because there wasn't any kind of shortage a year ago. So maybe the actual growth in exports won't be 350 gigawatts a year, uh, this year. As I, as I said, uh, in the article. And actually, you know, I was looking back at this article which I wrote a couple of weeks back now and I was thinking, hang on, that's surely it can't be growing that much. Surely, um, surely all that happened was they had a big surge in exports back in April because of the tariffs coming in under Trump. Actually I was right, it wasn't because of the tariffs. This is actually more substantive than that. Only 3.4 GW hours of these orders are destined for the US. They're also future oriented orders, so they're not sneaking in ahead of the tariffs. And uh, yeah, 3.4 gigawatt hours to the U.S. so almost none of the 144 gigawatt hour total, of that total 115 gigawatt hours has disclosed destinations. And actually the biggest region is the Middle East. 34 GWh going there, including 19 GWh to the United Arab Emirates and 8 GWh to Saudi Arabia, uh, just because they are now building their solar complexes so they need batteries to go with it. And then you've got the second biggest region being a country with 26 million people in it. Hello, it's us. It's the Australians. And when you look at this, I think you should view those, instead of viewing those huge, um, leading positions, the uae, Saudi Arabia, Australia, instead of viewing them as sort of aberrations, although they will be to some extent, uh, I would actually view all of these smaller markets as the real aberration. I would think all of these other Markets in the world will eventually grow to that scale. And so, yes, 350 gigawatt hours exported this year, which is my guess, that's pretty huge. But in 10 years it could be 3 terawatt hours. And then towards the end of this article, I dig into the costs. So obviously with so much demand, it won't be surprising that that's kind of being incentivized by unprecedentedly cheap batteries. So within China there's some tenders for just $52 per megawatt hour. Battery systems, if they're four hour, uh, obviously the shorter systems, uh, cost a bit more if you're measuring it by megawatt hours. You know, and the last thing to say, when I mentioned the thing I love to say about how the energy storage demand is going to increase by 10 times in 10 years, I'll just close out with some stats on actual lithium production capacity because I've said over and over again, oh, it's an overcapacity. Oh, maybe the price will do something interesting eventually. But, uh, we actually, uh, it's time to put some figures to that. So the demand right now is about 1.5 million tons of lithium per year. Uh, for the total battery industry, the output is 200,000 tonnes higher than that at 1.6 to 1.65 million tons. The production capacity though, is not actually that much higher than the output. It's only between 1.9 and 1.95 million tons. So if demand grows by a third, suddenly you need to increase the production capacity already. These, uh, are stats from the ICC Xin Lang Lithium Battery, which is a Chinese industry consultancy, by the way, if you want to somehow try and look that up, probably if you're Chinese, otherwise you're going to have a hard time finding it in Chinese language. There will actually be a need for new mining expansions and that's why we have Rio Tinto still expanding. I think we actually will see a bit of a price crunch. And the reactions to that, both increased lithium production and the adoption of alternative chemistries, contrary to what I've commented earlier, uh, maybe the adoption of the alternative chemistries will be a little bit difficult to ramp up in time because this is, you know, we're talking terawatt hours of demand each year, vanadium flow, sodium, they, uh, might actually struggle to ramp up. And one last statistic, Argentina's Ministry of Mining, uh, has recently commented that in 2024 it exported $645 million worth of lithium and it expects this to grow 17 times over to 11.3 billion in 2032. So that's eight years from now. Well, seven now. Which is also about how long it takes to get a new mine fully operational. So, yeah, I think I'll close the last weekly news podcast on that note. It's appropriate that just batteries because it's the batteries that are still, uh, a dynamic, uh, industry. Uh, so with that, goodbye and I'll see you, I would say, next week, but actually I'll probably see you next month, if anything. And so with that, I close the Rethink Energy, uh, weekly news podcast. I hope you enjoyed, uh, it. I did get some, uh, sort of congratulatory messages from people saying they've enjoyed, uh, listening. So, uh, thanks. Thanks to those people and their kind words. Uh, but I will still be joining you on a much more intermittent basis with various interviews. I think I. I'd like to do an interview with some perovskite fellows. Synthetic quartz, nuclear, um, power with Ed Ho and um, battery raw materials. Actually, I've got one lined up for that too. So I'll be seeing you. Have a nice week.