America's Asian Nuclear Challenge:
Historical advantage may not be enough to
ensure success in Asia's electrification race.

By Christopher Stephens

This article was first published in The Wall Street Journal's Business Asia Column, November 18, 2010.

Asia's ongoing infrastructure boom has induced a frenzy of activity on the part of many Western executives keen to get a piece of the action—especially in the power-generation sector. Despite over 120 years of project development experience, Western firms' success in Asia's electrification race is far from assured. The challenges facing Western companies competing to build nuclear plants offer a telling case study.

Asia ought to be a natural market for Western nuclear-generation giants like Westinghouse, General Electric and Areva. On the demand side, Asia's desire for nuclear energy is only increasing. The world's 440 nuclear reactors produce 14% of global electricity, but account for less than 1% in Asia, where coal- and gas-fired power plants dominate.

Historically, nuclear energy was seen as too expensive, technology-intensive and politically sensitive compared with the fossil-fuel alternatives. But those perceptions are evolving as concern about long-term access to natural resources, fuel-price volatility and environmental considerations loom in policy makers' minds. With hydropower already nearly fully deployed—there are only a finite number of rivers to dam—nuclear power is the only non-carbon-consuming, non-carbon-emitting alternative that is currently deployable on a large, commercially viable scale.

As a result, 10 countries in Asia have nuclear energy development plans. New Delhi forecasts India will spend $175 billion to increase nuclear energy production 13-fold by 2030. China, India and Vietnam combined will build about 115,000 megawatts of nuclear generating capacity, investing more than half a trillion dollars over the next 15 years. At least 46 countries will build 1,000 reactors by 2030, creating trillions of dollars of revenue and tens of thousands of jobs across the technology, engineering, construction, materials and services supply chain.

American, French and Japanese companies ought to enjoy several advantages. They already are global leaders in systems design, equipment technology and project management. Together, American, French and Japanese companies have built more than 70% of the world's nuclear capacity. That experience created a first-mover advantage that sustained their dominance for decades. Technological advances in operations, safety and durability further anchored their market position.

Yet despite those historical advantages, keeping up with new competitors like Russia's Rosatom and Korea's Doosan Heavy Industries and Korea Hydro & Nuclear Power is proving difficult. And now increasing competition from China is making life harder still. Already the world's largest manufacturer of wind turbines and solar panels, China aims to become the largest builder of nuclear power plants within 10 years. Beijing accords long-term energy planning a central role in its national security, both to propel its continued economic growth at home and to compete for trillions of dollars of clean energy projects abroad.

American technology is currently used in more than 50% of the world's nuclear power facilities, but that dominance is in danger. One startling reminder of this came earlier this year: Hanoi signed contracts worth roughly $20 billion for foreign companies to build four nuclear plants in Vietnam. Russian companies captured $5.6 billion of that, and Japan the other $14.4 billion. France and South Korea were rumored to be the runners-up. Despite U.S. diplomatic intervention and financing, America brought up the rear. Late last year, a South Korean consortium landed a $40 billion deal for a four-reactor project in the United Arab Emirates, and in May, Russia's Rosatom signed up the first nuclear plant in Bangladesh.

In part, the new entrants' success is attributable to the strategies of Western companies themselves in approaching Asian markets. To gain its foothold in China, Westinghouse agreed in 2007 to transfer cutting-edge technology to a Chinese partner. In the short term, that arrangement helped Westinghouse win a $5.3 billion contract to build four reactors at two plants. But it was also part of China's "self-reliance program" and has enabled China to adopt that technology for further domestic expansion and for sale to other countries—becoming a new global competitor now offering proven technology, lower prices and cheaper financing.

But American companies in particular also feel the effects of policies at home when they try to compete abroad. America has not built a new nuclear power plant in 30 years. This is a competitive disadvantage when China will construct 33 nuclear reactors at home by 2030, adding each year more than the entire generating capacity of India. France's 60 reactors generate 80% of that country's electricity, and Japan's 55 reactors produce more than 60% of its energy. The enormous extent of their home-schooling enables companies in these countries to bring a formidable domestic experience to bear in international markets. American companies lack that opportunity, forcing them to innovate on new technologies abroad at the same time that they have to navigate a web of foreign tax and regulatory policies.

The renaissance of nuclear energy is the most potentially lucrative development in the $6 trillion global energy sector. The question for U.S. policy makers is whether they aspire to global leadership or are content to import foreign technology at home and to cede foreign markets to others.