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Nuclear power plant builders see new opportunities in India

NEW DELHI/TOKYO U.S., Japanese and French companies are eyeing the Indian nuclear power plant market as demand for new reactors stagnates in developed economies, and as concerns mount regarding China's growing presence in the industry.

U.S. President Barack Obama and Indian Prime Minister Narendra Modi agreed at a June 7 summit that U.S. nuclear reactor maker Westinghouse Electric, a subsidiary of Japan's Toshiba, would build power plants in the South Asian nation. In a statement following their meeting in Washington, Modi and Obama said they welcomed the announcement by the Nuclear Power Corp. of India and Westinghouse that they would finalize a contract by June 2017. The two companies had said they would immediately begin the work of designing reactors and selecting locations.

Westinghouse plans to build six reactors in India by 2030, with a total generating capacity of 6 million kW. The total project cost, which has not been disclosed, is estimated at $20 billion.

India faces a serious power shortage amid economic growth and regards nuclear energy as a key driver of future electric power development. As the nation opens its market for nuclear plants, competition is likely to intensify between the U.S., France, Japan and other countries seeking a greater market share.

France reached an agreement early this year to start a development project in western India in 2017. Although a formal agreement has yet to be signed, the country will compete with the U.S. to become the first Western country in about 40 years to deliver a reactor to India. Japan also reached a broad agreement with India in late 2015.

According to the Japan Atomic Industrial Forum, 437 nuclear reactors were in operation globally as of January 2015. The U.S. led the world with 26% of them, followed by France at 17%. Westinghouse and its U.S. rival General Electric have developed pressurized-water and boiling-water reactors, respectively, putting the U.S. at the center of global nuclear power generation.

In India, there are now 21 reactors in operation. Their total capacity is 5.78 million kW, which makes the country 14th in the world in terms of generation. India plans to add about 40 reactors by 2032, boosting capacity more than 10-fold. According to the International Energy Agency, India ranks second, after China, in the projected increase in nuclear power capacity by 2040.

PEAK DEMAND In the wake of the accident at Tokyo Electric Power's Fukushima Dai-ichi plant in 2011, demand for atomic energy has peaked in developed countries. The main future markets for nuclear plant suppliers will be emerging countries, with India foremost among them.

The new Westinghouse reactors at Georgia Power's Vogtle plant in the U.S. are expected to begin operations in 2019 and 2020.

India relies on coal-fired thermal energy, which is accompanied by high levels of carbon dioxide emissions, for 70% of its power. The government plans to sharply raise the share of nuclear energy from the current 2% to increase generating capacity and reduce CO2 emissions.

However, India previously had no option other than to build its own reactors, because the country was shut out of the global atomic energy market after conducting a nuclear test in 1974 as a nonmember of the Non-Proliferation Treaty. The country built reactors under government projects based on U.S. technology it had introduced earlier. Two Russian reactors are the only foreign-made ones delivered since 1974, and only one of them is in operation.

The Nuclear Suppliers Group lifted its ban on supplying nuclear technology and fuels to India in 2008, and the U.S. and France signed agreements with India the same year, clearing the way for the South Asian nation to introduce more efficient reactors. In 2010, India enacted a law that makes reactor manufacturers responsible for compensation in case of an accident, bringing business negotiations with foreign companies to a standstill for some time. The government recently ratified an international rule that requires a country in which a nuclear accident has occurred to bear compensation up to a certain amount and the other nations under contract with the country to share the remaining amount. While India will try to free foreign companies from anxieties about risk, it will have to amend the domestic law, which is not in agreement with external treaties.

The reactors that Toshiba's Westinghouse unit will deliver to India are its state-of-the-art AP1000 model, the last order for which was in May 2008 for a U.S. project. Reeling from an accounting scandal, Toshiba has positioned its energy business -- including nuclear power -- as a core segment alongside memory chips, following a restructuring that has included selling off its medical device and white goods operations as well as eliminating about 14,000 jobs.

The rehabilitation road map that Toshiba unveiled in March envisions increased orders for cutting-edge reactors driving the growth of the nuclear business. The company is building eight reactors in the U.S. and China. Toshiba aims for this segment to generate 1.02 trillion yen ($9.54 billion) in sales in the fiscal year ending March 2018, a roughly 40% increase from fiscal 2015. The company is aiming for nearly 40 new orders by fiscal 2030.

But challenges remain. Safety regulations have tightened following the 2011 Fukushima disaster. The pace of global nuclear projects has been less than speedy amid the rise of Chinese companies and the growing cost competitiveness of alternative energy sources. Nuclear power operations have not generated as much earnings as hoped for, even though Toshiba has been strengthening fuel and maintenance services. The company booked about 250 billion yen in impairment losses for the nuclear power business in fiscal 2015.

JAPAN-U.S. COOPERATION The U.S. long led nuclear power development, but Japan seized the opening that followed the 1979 Three Mile Island nuclear accident in the U.S., which was followed by the Chernobyl disaster in the former Soviet Union in 1986. While the U.S. came to a standstill in construction of new nuclear plants, Japan built many and benefited from technology transfers through partnerships with U.S. companies. Toshiba acquired Westinghouse in 2006, and Hitachi and GE integrated their nuclear businesses in 2007.

However, since the Fukushima disaster, most nuclear plants in Japan have been idled. Globally, most major nations are also maintaining a cautious stance on atomic energy. Plans for the construction of nuclear plants have been halted or suspended, and decommissioning of reactors continues in Europe.

China, however, has been building plants at an accelerating pace and accounts for 40% of the 70 reactors now under construction around the world. It has adopted a strategy of introducing technologies from overseas builders, stressing domestic demand for electricity. It now uses technologies from Westinghouse and Areva of France, which leads the European nuclear industry.

China also developed its own reactor, called Hualong One, based on know-how accumulated from technologies supplied by Westinghouse and Areva. It has already clinched a construction deal with Britain.

Concerned about the emergence of China in the militarily sensitive field of nuclear power generation, the U.S. has gone on the offensive, pursuing its alliance with India. Westinghouse is spearheading the U.S. offensive, and its contracts in India will help reduce the company's reliance on the Chinese market as it seeks to win orders for 64 reactors by fiscal 2029.

In contrast with Westinghouse, GE remains cautious about nuclear power. The company has shown no signs of accelerating its own involvement, and Hitachi-GE is a silent observer in India.

Areva, meanwhile, has been crippled by massive losses, leaving its project in India up in the air as the company awaits rescue. Mitsubishi Heavy Industries, Areva's partner, is thought to prioritize its aircraft and ship businesses over nuclear power. To address Areva's financial difficulties, China concluded a deal through talks between France's President Francois Hollande and Chinese Premier Li Keqiang, allowing a major state-run Chinese nuclear power company to invest in the French company.

The Toshiba-Westinghouse, Hitachi-GE and Mitsubishi-Areva teams will continue tactical games while keeping an eye on international politics.

Nikkei staff writer Kiran Sharma in New Delhi contributed to this article.

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