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CGN finds unusual path for growth

2017-10-01

Editor’s note:

Nuclear power has become China’s calling card just like its high-speed rail network since the 18th National Congress of the Communist Party of China in 2012, and CGN plays a leading role among Chinese nuclear power enterprises.

The achievements made by CGN have repeatedly hit the headlines in recent years – the listing of CGN Power Co in Hong Kong, its new development of nuclear power projects in the UK and Romania, the acquisition of the equity and new project development rights for the power project company affiliated to Edra Global Energy, as well as 13 clean energy projects in five countries (Malaysia, Egypt, Bangladesh, UAE and Pakistan) along the Belt and Road.

Chinese nuclear corporation debuts in world’s top 5

On Jan 1, 2016, the first day of the 13th Five-Year Plan (2016-20), Unit 1 of CGN’s Fangchenggang Nuclear Power Plant (NPP) and Unit 3 of Yangjiang NPP went into commercial service and they were the first two newly-operated units during the 13th Five-Year Plan period. Now, CGN has 20 nuclear power units in operation with an installed capacity of 21.47 GW, ranking the first place in China and fifth in the world.

Five years ago, CGN had only six nuclear power units in operation with an installed capacity of 6.12 GW.

By 2020, CGN’s total installed capacity will rank the third in the world, after France’s EDF and Russia’s Rosatom,” CGN chairman He Yu said.

Not only the nuclear power, but also the new energy business saw a tremendous surge in the past five years.

In 2016, CGN’s installed capacity of wind power in operation reached 10 GW, becoming the fifth Chinese enterprise to achieve 10 GW level. CGN New Energy Holdings Co has grown into a leader in its field in China.

Last year’s total profit from its financial service sector saw a year-on-year increase of 72 percent.

CGN’s total assets, operating income, profits, and installed capacity of nuclear power units in operation at the end of the 12th Five-Year Plan (2011-15) period are 3, 2.8, 2.2 and 6.1 times as much as those five years ago, according to He Yu.

The average annual growth rate reached 20 percent, 18 percent, 15 percent and 35 percent, respectively, He added.

He noted that the enterprise formed a “4+X” development pattern, with “4” referring to four major businesses -- Nuclear Power, Nuclear Fuel, New Energies and Financial and General Services and “X” referring to other businesses.

Here is the recipe for the progress made by CGN.

Reform

CGN Nuclear Technology Application Co Ltd (CGNAT) and Dalian International Cooperation (Group) Holdings Ltd (Dalian International) completed a major asset restructuring and went public on Shenzhen Stock Exchange on Feb 27 this year. Dalian International was officially renamed as the CGN Nuclear Technology Development Co Ltd on the same day.

The asset restructuring integrates the resources of a centrally administrated State-owned enterprise with the advantages of a private company.

The move also enabled it to be CGN’s first subsidiary to go public on the A-share market and China’s first listed non-power nuclear technology applications company.

Founded in 2011, CGNAT specializes in modified radiation new materials, accelerators, radiation processing, and nuclear instrumentation. It grew into a leading company in domestic non-power nuclear technology industry through launching joint ventures, mergers and acquisitions (M&As).

Before this listing, CGN New Energy Co and CGN Power Co went public on Hong Kong Stock Exchange in October and December of 2014, respectively.

As the first listed company on nuclear power business in the world, CGN Power’s listing caused quite a stir in Hong Kong. The amount of money raised in the IPO reached 22.6 billion yuan ($3.41 billion), which turned out to be the largest IPO in Hong Kong since 2011 till the date of listing for Chinese enterprise.

The retail investors had more than 286 times oversubscription, with about 350 billion HK dollars were frozen on the same day. It was awarded Kings of Money-Raising and Money-Freezing from 2010 till the date of listing.

After the listing, enterprises had to strictly abide by the security laws and regulations in Chinese mainland and Hong Kong. They must be responsible for their shareholders and constantly create more value and win public trust through open and transparent operations, said He Yu, adding that the requirements of the capital market forced the enterprise to implement reforms.

In recent years, CGN has finished the top-tier design and planning for its goal of developing into a state-owned capital investment company.

The design and planning involve the repositioning of both the headquarters itself and its subsidiaries, the management of different divisions, new businesses and new projects, as well as the two-level management and control mechanism – the headquarter controls the divisions’ strategies and financial affairs with the Party’s leadership; and the divisions control the business units’ operation with the Party’s leadership.

Meanwhile, CGN is improving the standardized operation of the board. In March 2014, the board began to function, marking a substantive step in perfecting its corporate governance structure and adopting modern enterprise management.

He Yu stressed that CGN always adheres to the leading role of the Party Leadership Group and scientific and reasonable decision-making process.

Innovation

On Feb 23, 2016, more than 30 guests from 10 countries including the UK, Thailand and Kenya, as well as global media such as Reuters and the Financial Times gathered in Daya Bay to attend the Hualong One (HPR1000) Tour and a summit aiming to globally promote the domestically developed third-generation reactor design – Hualong One technology.

In August of 2014, the general technical proposal of the design passed the review of national authority. Two demonstration projects started construction in Fuqing, Fujian province and Fangchenggang, Guangxi Zhuang autonomous region in April and December of 2015, respectively.

The Hualong One technology is becoming an international mainstream third generation nuclear power technology just like the Europe-designed EPR technology, Russia’s VVER1000 nuclear model and the AP1000 reactor design of the US.

CGN signed a package agreement with EDF (France) and the British government on Sept 29, 2016.

According to the agreement, a CGN-led consortium and CGN’s partner EDF will co-invest in building Hinkley Point C (HPC) nuclear power project, and promote the two follow-up projects Sizewell C (SZC) and Bradwell B (BRB). For BRB project, it’s proposed to adopt Hualong One technology, a domestically developed third-generation reactor design, which has finished the first phase of the UK’s generic design assessment (GDA), known to be the world's most rigorous one.

It is the first time for CGN to build nuclear power stations in a developed European country. It is a milestone event for the going-global of China’s nuclear power and signifies Hualong One technology has been recognized by developed European countries.

The Hualong One technology was developed after some 30 years of learning and innovation, just as He Yu said, innovation is the “cornerstone” of CGN.

During the 2011-2015 period, CGN spent over 10 billion yuan on technological research and development, accounting for 5 percent of its revenue from main business.

Besides the Hualong One, CGN has some other cutting-edge technologies that broke the monopoly of foreign countries such as FirmSys, a nuclear safety digital control system that is considered to be "central nervous system" of a NPP.

The domestically developed system also enables China to be the fourth country to develop nuclear power DCS in the world.

However, CGN’s efforts in innovation go further. It mapped out a scientific innovation plan to guide the research and development of its nuclear power, nuclear fuel, new energy and nuclear technology.

Globalization

The UK nuclear power projects showed that China has shifted from being a novice to a pioneer in the nuclear sector worldwide.

CGN signed a life-cycle agreement with Romanian national nuclear company Nuclearelectrica to co-develop the Units 3&4 of Cernavoda NPP on Nov 9, 2015, and obtained the letter of support from Romanian government on the project on Jan 20, 2016.

In the nuclear fuel sector, CGN expanded its business to Central Asia, Africa and North America.

CGN signed a deal with Kazakhstan's government-owned Kazatomprom to set up a joint venture in Kazakhstan to design and fabricate nuclear fuel assemblies, which began construction last December; the Husab Uranium Mine in Namibia has started production; and CGN acquired 19.99 percent shares of Canadian uranium explorer Fission Uranium Co and became its largest shareholder.

The uranium resources CGN has controlled are up to 300,000 tons which could satisfy the refueling needs for 30 gigawatt-level nuclear power units in the next 30 years, He Yu noted.

CGN set up a subsidiary in Paris to expand its new energy business in Europe in late June of 2014.

The subsidiary – CGN European Energy Company now has grown into the seventh largest new energy operator in Europe. It has gained Belgium's largest onshore wind farm.

The company also won a tender for a floating wind power project in the sea off the island of Groix, which will be France's or even Europe’s first offshore floating wind power projects.

It was the first time for a Chinese enterprise to tap into the floating wind power market.

Last December, CGN acquired a wind power project in Ireland and become Chinese enterprise’s largest-ever investment project in the country.

In the end of 2015, CGN completed an equity purchase deal with Malaysian energy company Edra Global Energy and bought 13 clean energy projects in five countries along the Belt and Road, adding to CGN’s installed capacity by 6.62 GW.

CGN has new energy businesses in more than 10 countries and regions, and the installed capacity of their operating overseas projects amounts to 9 GW, accounting for about 40 percent of CGN’s total installed capacity of new energy business, according to He Yu.

He Yu said the globalization of the company involves various businesses and features “full-scale”. CGN has made its presence in more than 20 countries with overseas revenues accounting for over 20 percent of its total.

Efficiency

The generating capacity is quite crucial for a clean energy company to improve its benefits.

In order to save time and produce more wind power, the maintenance workers always hastily finish their lunch in the engine room, said Lin Jian, president of CGN New Energy Holdings Co.

The efficiency has been on the employees’ minds and they all try their best to increase output with less time, Lin added.

An e-commerce platform has been put into operation to conduct unified management on suppliers and monitor all the purchases online.

CGN is improving its management and control mechanism to lower cost. With three years’ efforts, it launched centralized purchasing platforms for project bidding, operational spare parts, uranium resources, public supplies, conventional energy and insurance.

In addition, the company is exploring more low-cost financing channels at home and abroad. CGN European Energy became the first Chinese enterprise to obtain loans from local banks, though the procedure was quite rigorous.

Meanwhile, CGN has started to clean up non-main business assets, bad assets and shell companies since 2011 and manage the low-efficient assets since 2014.

He Yu said the traditional development pattern focusing on projects will move toward an integrated one that combines project construction, investment and M&A, as well as innovation-driven growth, so as to realize the goal of “building another two CGNs” by 2020.