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Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, you know, we've been talking a lot about the U.S. energy system for obvious reasons. At least when it comes to electricity. I don't know about you. I kind of feel like the more we talk about it, the less I understand it. Yes. Yes, absolutely. I think there are a couple of problems here. So like even beyond the actual different technologies for generating power, there's the patchwork of like energy.
how different grids work in different states. There's the different regulations, the different interoperability and all of that. And then even if we look beyond the U.S., it gets, I guess, even more different. Yes. Well, I sort of wonder, maybe we can learn something about the U.S. by a little compare and contrast, right? So if we look at the U.S. and we still don't totally get how it worked,
Maybe, I don't know, just a thought, maybe we'll learn something about the U.S. by looking at some different system, and then we have something to compare it to. It might be a way in by looking at the outside world. I'm a big fan of doing this, by the way, just to identify different choke points in a particular domestic process. If you think that the U.S. can't do something for whatever unidentifiable reason or, I don't know, cultural holdback
But if you look at a different country and they're doing it at scale very, very quickly, then I think you can learn a lot about yourself. Well, that's exactly right. And so one of the things, again, that comes up from time to time here in our conversations is nuclear. And this is just one example of a source of power that may or may not be important in our future. But
According to – and I'm looking at a story from The Economist. Over the past decade, China has added 37 nuclear reactors according to the International Atomic Energy Agency.
I don't know, maybe we've added like two. I forget how many there are at that Georgia plant. A couple more may be restarted. But, you know, we talk all the time about nuclear and how hard it is and how hard the financing is and the labor force and the learning loss. And, oh, we forgot to, you know, we forgot how to build them for various reasons.
But that's not – and it's so expensive. There's all these cost overruns every time. But apparently that is not the case everywhere and that there are other parts of the world, particularly China, where they just keep building at scale. And maybe we could learn a little bit of how they do that and how they finance it and how they avoid forgetting how to build them.
I think this is so interesting, this particular approach, the compare and contrast. And it is absolutely true. I think the U.S. has the most nuclear reactors out there, like almost 100 or something like that. But it took us decades and decades to build them. And as you rightly point out, we haven't built many new ones that recently. Meanwhile, China is adding more.
more and more. And they make it look easy. I mean, I guess they are just like giant things to boil water. But, you know, China really makes it look easy. So what can we learn from China? We really do have the perfect guest. By the way, we've had this guest on in the past. We talked to him about something completely different. Yes.
This was during the depths of the COVID crisis. And we were talking to this person. He was based out in Shanghai. And we were talking basically about how they were getting food into apartment buildings and staying alive during that time. Yeah. So that was an interesting sort of logistical story in its own right. If you're under complete lockdown in a Shanghai apartment building, how do you actually get food? And anyway, I'm thrilled because...
because now we're recording this December 17th, 2024. We are talking to him in completely different times. He's been freed from lockdown. He is now here in studio with us. So we are going to be speaking with David Fishman, senior manager at the Lantau Group. He's based in China, typically where he mostly focuses on the Chinese energy system. So literally the perfect guest and a repeat guest. So David, thank you for coming on Odd Lodge. Welcome to New York City. Welcome back. Hey.
Thank you for having me. What do you do? The only other time we talked to you, the only thing we knew about you is that you were figuring out how to get food into your apartment. What do you do now when that's no longer the pressing issue? Yeah, sure. So I work at a company called the Lantau Group. We are an economic consultancy. We're doing power and gas consulting across APAC. And so I'm focused on China. I'm in the China office. We're doing the business of electricity.
So for me, that means either somebody who wants to build an electricity generation asset, wants to sell one, wants to sell a portfolio of assets, wants to invest in one, maybe through a fund or as some other type of investment product. And then on the what we'd call our downstream, who uses the electricity, right? Your major multinationals, your factories, anybody who uses electricity as an input to produce things. So we're working in the business of electricity, trying to make
buying and selling electricity more economic for everybody involved. Well, I'm just going to dive into the nuclear aspect of this then. You know, Joe gave us some contours around how much China is currently building. When did China decide that it was interested in nuclear? And what was the sort of like thought process and the strategy about how nuclear would fit into everything else, including the coal power that China is famous for using? Yeah.
Yeah, I mean, the history of the Chinese civil nuclear power industry goes back to stems back to the 80s. So looking at, you know, the mid to late 80s is when China was signing agreements to bring in its first nuclear reactor technology. At the time, it was there are two different paths they were pursuing. They signed an agreement with Framatome, a French company to bring over one reactor, and they developed a domestic reactor with at the time, the Soviet Union to have a
domestic technology tree as well. So in the 80s, China was actually experiencing some pretty rapid economic growth, especially in the late 80s, and looking to expand its power supply rapidly. And at the time, it was quite tight. And so nuclear was seen as a potential way to expand the power supply and get into power generation for what was at the time something very new for China.
So I mentioned literally from just reading the first paragraph of a paywalled economist story, that number about 37 new nuclear reactors. I saw that one too. I just Google, how many new nuclear reactors are being built in China? Scroll down until I find something in the Google search. This is how the research is done, folks. But why don't you, in your words –
Give us a sense of the size and scale of Chinese civil nuclear generation and where it's going and then sort of like the role it generally plays in the overall portfolio there. Yeah, sure. How would you describe it? Yeah, sure. So nuclear in China has the interesting status of being both –
relatively large and still somehow small. Large in the sense that it's one of the largest operating fleets in the world, right? You've got 50, almost 60 reactors operating. We're talking about nearly 60 gigawatts of generation capacity. But then in the context of China's entire generation fleet, right? They've got well over a thousand gigawatts of coal and then many more thousands of gigawatts of wind and solar. So it's both large in the context of the world, but also small.
And that's the case for a lot of things in China. The thing that can be large in China can also be small. And what's the ambition for, you know, looking out, you know, in a five-year plan? I don't know whether they do that for energy, too. Where is nuclear potentially? How much could nuclear be a thing? What's the size and scale of the ambition?
Yeah, sure. So long term, I mean, it depends on how your energy planners and your economic planners envision the long term makeup of the grid. What type of power are we using in 2050? Is it going to be a little bit or a medium amount or a lot of nuclear? So it's scenarios, right? And China has scenarios too, for a high end, a low end. So the
Recent scenarios that I've seen, originally it was saying no less than 300 gigawatts, 250, 300 gigawatts. So 250 or 300 reactors, right? 250 units. So United States has just about 100 right now. So if they got to that scenario, it would be about two and a half times what the U.S. has right now. So what's the process by which a new nuclear reactor gets built in China? And how much does it differ from what goes on in the U.S.?
Sure. Well, the steps of the process are actually very similar. These are international best practices for how you build these types of infrastructure. So you have to choose a site, you're going through a siting process, an environmental impact report, maybe you got to make sure the local sea life is not going to be affected by
warm water being discharged, there's no endangered species nearby, all those different aspects. So you choose your site, that takes a few years. You have a consultation period, there's a period for the public to maybe express their dissatisfaction. This happens in China too.
And when the site is finally selected, then you start pre-construction. You can level the site. You can connect communications, utilities. You can do all your pre-groundwork. And then we're waiting for a really key milestone called FCD. That's first concrete date. And that's when the first barrel of safety-related concrete is poured at the site.
And so that would be the beginning of your construction of your containment building. And so from FCD to your full construction period, you do civil construction, you do installation, you have commissioning. Maybe you encounter some issues during commissioning, you do troubleshooting, right? And eventually you fully connect, you connect it, you load your fuel, you have your first criticality, the first time that fission starts in the reactor, then you connect it to the grid and
And then you get up to 100% power and you got a nuclear power plant. If you do it quick, you're looking at 10 to 12 years. If you do it not so quick, you're looking a lot more than that. So it takes a long time in China too. So, you know, we look at U.S. construction builders like, oh, can we? It's a long process anywhere you look.
I want to ask about the financing. So if there's a new – who's paying for this? And also, how are they selling this energy? Because one thing I get the impression of is that setting aside the cost of building a new nuclear reactor, which is an expensive, time-consuming process –
The electricity market structure also seems to matter a lot because you need a certain amount of guaranteed offtake. You need a certain amount of price stability. If the price drops to zero for a long time because it's very sunny and windy in that area, and suddenly that's screwing with the economics of it. And so market structure and financing are both important. Talk to us about how that works in China versus here.
Right, sure. So the builders, right? The companies that are constructing and eventually owning the assets are all state-owned enterprises. So you've got these great big SOEs. Their job is to own and operate nuclear power plants. And so when they go out to secure financing, of course, they're securing financing from state-owned banks as well. They're going to be getting very preferential loan treatment, right? Very low percentage rates, maybe 2%, 1.5%, things like that. For a huge infrastructure like that, we're talking billions of dollars. That's the actual rate, not the spread.
Okay, keep going. So very, very low rates because again, they have a mandate to build. This is state banks, state infrastructure and state builders. They need to build these things. And then when they're going out to sell power, right now they're given a guaranteed on-grid rate. So the grid company and the power regulators say, when you complete your plant and you start selling power, we will make sure you receive this much for every kilowatt hour of power that you send into the grid.
Long term, they want to marketize it. They want to have that exposed to the vagaries of the markets the same way that you would see maybe in the United States or Western Europe. And that will be an adjustment for China's nuclear industry. Historically, they have only operated on this kind of fixed feed-in rate.
So, I mean, that's a pretty big comparative advantage if you're getting subsidized financing from a state-owned enterprise or something like that. Plus, at the moment, you have that guaranteed offtake, even though they might want to move to a market-based system before. It also strikes me that there are a few other potential comparative advantages, like lots of ready labor, lots of manufacturing capacity, presumably, that's able to make the stuff you need for these things. Walk us through, like...
all the different advantages that China has in this process. Yeah, sure. So if you maybe you've seen before or not, if you look at one of those like stacked bar charts that it compares all the cost components of, you know, building one of these things in China versus Europe versus the United States.
It's not like you'd point to any single component of the stacked bar and say, ah, that's it. That's the key. That's why they're so cheap. Every single component is cheaper, right? You've got your cost of capital is lower. You've got your construction timeline is so tightly managed, right? So you're saving on interest costs as well. And the sooner you can connect to the grid and start selling power, that's when you start making your money back, right? So every day that you go over your construction schedule, we say in the US about a million dollars of missed power sales. Wow.
And then also about a million dollars of interest payments. So you've got this $2 million spread every day over your construction schedule that was originally planned. That's just mind boggling. Then we look at the production capacity, right? China's incredible industrial production capacity. We're talking about these heavy forged components that maybe only a couple of companies in the whole world can make. Things like the reactor pressure vessel, the steam generators, the pressurizers, the primary piping, the reactor coolant
pump, all these things. There's like three companies in the world that can make these. And now at this point, several of them are in China. And when they need to prototype, when they need to iterate, when they need to troubleshoot something, it's all in one industrial cluster. It's all a company and its subsidiaries or its sister partner companies, right? And so they can quickly trouble through things really quickly. So that's going to be your industrial production component, very strong. You've got
People work longer hours. They'll work through weekends. They'll work through holidays. China's really, really competent at building very large construction, very large infrastructure, right? It could be a dam or a bridge or a highway or a high-speed railway or a nuclear reactor. When it comes to the construction know-how of being able to do it on time and like an oiled machine, they're winning there too. And then we talk about the actual way they're building the nuclear power plant.
plants. There's something really interesting here. This was actually pioneered by Westinghouse out of the United States, something called modularized construction, where on-site or off-site, you're prefabricating large portions of the reactor, portions of the containment building. And so you can work on individual components at the same time, bring it to site, and then you get
the largest crane in the world that lifts this massive, massive pre-assembled component into place. When you're able to work like that, you can cut down the construction schedule even more. Interestingly, Westinghouse pioneered that, but they haven't been really successful in implementing it in their recent builds. China, on the other hand, learned from Westinghouse and has been very successful with this modularized construction approach.
Can you talk more about that? Because it's very intuitive, right? The idea that the more you could build at the factory and the less you have to build on site makes it easy. And a lot of the, so far it seems like mostly hype about small modular reactors in the U.S. is sort of on this idea. Like, don't start every project from scratch.
Why is it apparently hard, even though in theory that seems very obvious? Because I don't know if there actually are any modular reactors in the U.S. despite the sort of intuitive appeal.
So I think I got to clarify here. There's modularized construction and there's small modular reactors. Oh, okay. So SMRs or small modular reactors, they refer to a situation where the entire reactor is encased in a single unit. Oh, okay. Got it. Yeah. But it's still this idea that a lot of the fabrication process happens not at the site itself.
Again, something that feels highly intuitive and apparently easier said than done. Well, so my understanding from the Westinghouse design approach when they used this for the first time in designing the AP1000 technology that we built here in Vogel in the United States is one of the major barriers. Well, there's several. There's always going to be regulatory barriers, right? It's a new way of doing things.
Anytime it's a new way of doing things, the regulator is going to want you to jump through a million hoops to try to clarify and justify that what you're doing is defensible and safe. So you've got that one, of course. But then the actual logistics of lifting these massive, massive, we're talking thousands of tons of
Yeah.
Then you have this giant, giant crane that's in place and it swings around. It usually works for two different units to build two reactors at the same site. Interestingly, they weren't able to use this giant, giant crane in China because of a design miscommunication. The first AP-1000s that Westinghouse tried to build in China, they didn't leave space on the site to put the giant crane. Oh.
So in the end, they had to use a very, very large roller crane instead, which just about did the job, but it forced them to change the way they built it. China has learned from that, though. So the newest, you know, Hualong-1 reactors that China builds, they use a giant ring crane. I believe they use a Zoom Lion. It's a Chinese brand. Has designed one of these, built one of these massive ultra-heavy lift cranes as well. And so now that's, you know, they're reaping those benefits. ♪
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I have a slightly random question, which is building nuclear reactors, how customized do the components that go into these actually have to be? Like how much does the design actually vary site to site? Well, if they are the same series of reactors, right, you could say the AP-1000, right, that's a base unit. Now the ones that are built in Vogel and the ones that were being built at Summer in South Carolina before that was canceled, those were probably a little bit different, right?
but largely part of the same series. The ones that were built in China were built on that same platform, but they would have been modified a little bit for the Chinese context. They called them Chinese AP-1000s, CAP-1000s. But you could say they're substantially the same reactor with small modifications.
When we start talking about different series, though, if we say like the French design versus the US design versus what's being sold now in Korea or something like that, you'll see more similarities to their predecessors that they came up through different generations of technology. So like Korea, you'd see similarities to the old GE Hitachi reactors because that's where they got their technology originally. Then you'd see to, say, a modern AP1000. These are different tech trees from different competitors.
So if I'm a guy on Twitter listening to this, and I am a guy on Twitter, except I'm talking in this, but I'm just a guy on Twitter, and I'm hearing you talk about, okay, they get preferential lending from the state-owned bank. The company is state-owned.
probably the crane company is state-owned. There's probably a few other state-owned businesses. And I think, yeah, okay, you know, they're really good at building reactors fast, but there must be some sort of accumulated debts and inefficiencies that come with all of these, all of these entities that have something other than a profit motive. And, you know, probably, you know,
I don't know that my intuition or my response to you or my dunk on you is that there's going to be all these accumulated losses that ripple through the systems on account of the fact that it's SOE working with SOE after SOE. Do we have any sense?
of how economic these projects actually are. Because if these were private companies, you say, oh, they're either making money or if these were sort of strictly for profit listed companies, you say, well, they're making money. They're not making money, whatever. How do we think about the actual economics of whether this is good investment? Because it's cool. Yeah. You know, China's building dozens of reactors. How do we know these are good economic investments?
Well, unless I can crack open China National Nuclear Corporation's books, I can't tell you for sure if these are good investments, right? But when they build them at that pace, you look at it from the outside and you say, all the conditions are in place to have surely built this according to the budget you set for yourself, right? You declared that you would build it with a certain budget and a certain time frame. Yeah, talk about the budgets and time. Right? So you're looking at your construction period of five years, your pre-construction and your commissioning, you add another five years or so, right? Yeah.
But then once they build it, they're saying, you know, we can build a single gigawatt unit reactor for $5 billion, $4.5 billion, $5 billion. You look at numbers out of the U.S. and they're saying we're going to build what Vogel cost was two units for $28 billion or something like that. You do a little bit of napkin math and you say that reactor can't possibly make back.
how much money it costs to build and its operating lifetime, or maybe it will just about get there after 40 years. And that's assuming that this plant operates in the spot markets really, really well and sells power so efficiently and never gets curtailed and never has issues like
that. Meanwhile, your napkin math in China is saying, well, they're going to sell power at this rate for the next 40, maybe 60 years. Maybe they'll do double life extension, maybe 80 years. And so many kilowatt hours of power times so much per kilowatt hour. Yeah, it looks like these things should be reasonably profitable. And keep in mind, the profit motive of Chinese SOEs is different, right? They're expected to try to be profitable, so they have cash flow to do things and be
be functional. But if they have to take a hit sometimes, they will. They can be the lubricant in the system that causes the inefficiencies to be okay because you've got a major SOE that was okay losing half a billion dollars last year. They'll make it back later. It's okay the system didn't fall apart. They were the lubricant.
So one way we could potentially judge the success of Chinese nuclear reactors is you could look at whether or not they are significantly changing the energy mix. And there was a story out this week saying that China's domestic coal production had reached an all-time high. And granted, that's production. That's not necessarily coal use. But I don't know. It doesn't seem like there's been a big impact just yet. Why is that?
And yeah, and that's right. I saw that yesterday too. I'm bummed about that because I'm on record saying back in December 2023 that I thought 2024 would be the peak year. And I thought structurally we were in place to be able to peak coal consumption in 2024. And I think we're going to end up up.
1, 1.5% year on year, something like that, which for China is a huge amount of coal because they consume so much coal. But it's really close, which of course means if we're up year on year and last year was the highest year ever, then this year is the highest best year ever. And so what are we looking at, though? We're looking at a power sector that is still growing consumption every year by 7% year on year, 6% or 7% year on year.
compared to the US, where a good year is maybe like 1% or half a percent year on year. And you talk about data center demand growth is going to maybe rise that and everybody's freaking out. How are we going to meet this new consumption need?
China's been growing like that, 7%, 8%. In the past, it was even higher for decades now. So to be able to peak coal consumption, we have to get to a single year where all of the incremental consumption growth is met by incremental generation from clean assets.
right, from wind and water and solar and nuclear. If we can't manage to do that in one year where all the incremental growth is covered by new incremental clean generation, thermal generation has to go up. And so that's still where we're at. We're real close. If it only grew by 1.5% this year, that means that's
7% of China's entire consumption mix was almost totally covered by growth year on year of wind and water and solar and nuclear, but it wasn't quite there. And so that's where we stand at 2024. I'm going to be made a liar of that statement I made at the end of last year where I thought coal consumption would peak this year.
Since you mentioned it, data centers is obviously a huge part of the story of the return of load growth in the U.S. I mean, there's obviously just the general modernization in a country getting wealthier. But tell us about the data center story in China as you see it and its impact on the grid.
Yeah, it's of course going to be another growth driver. The major difference here is that when China says, oh, we've got data centers coming in, so instead of 6.5% growth, it's going to be 7.5% growth, right? It's just what's a percentage point among friends, right? Whereas the United States going from half a percentage point to 1.5% or 2% is very different from how we've had to grow in the past. So China's, I think, approaching this with much more sanguinity maybe. They're just saying-
Yeah, it's going to be a driver of growth. Let's put them in some of our parts of the country that have low load and great renewable resources. We're going to put them in Inner Mongolia is where we're going to put them. We're going to put growth demand centers in Inner Mongolia. They don't need to be close to the low centers. That's the Chinese Virginia. Chinese is Inner Mongolia. Yeah, it's sparsely populated. It's got a lot of great energy resources. The wind blows and the sun shines all day long, and there's no load out there.
So it wouldn't have made so much sense maybe to cite your heavy energy-intensive industrial manufacturing so far from the demand centers, so far from the coasts where you could get it to logistics. Oh, they put some stuff out there, but it wasn't so intuitive to put energy-intensive industry out there. But data centers, oh, that's great, right? They don't need to be close to markets per se. You just need to be them close to the affordable energy. So it's looking like Inner Mongolia, places like that will be a great match for China's data center growth. LESLIE KENDRICK
So one of the things that's been happening in the U.S., speaking of data centers, is a lot of the big tech companies have been signing offtake agreements with energy producers, and they've been pushing them towards more renewable energy. So they say, we want clean energy to power these things, and you make it for us, and we'll take it. Do you see a similar dynamic taking place in China, or do people not care as much about the ultimate cleanliness of their energy for data centers?
Yeah, that's a major driver of how the power sector offers power, right? Your customers demand a certain type of power. You should be able to meet their needs.
Right now in China, you'd split or anywhere in the world, not just in China, you'd split green power consumption on the end user end into voluntary and mandatory. So mandatory says the government says you have to consume a certain amount of electricity that is green. We call it a renewable portfolio standard or an RPS. There's RPS in US states, not all of them, but some of them. And there's RPS in China.
So from that perspective, you could say the government mandates that you consume a certain amount of renewable energy to meet the quota. Now, right now, that applies to utilities in China, but it doesn't yet apply to end users. Your aluminum smelter doesn't have that many yet.
But that's the next stage of RPS that's being added right now. Data centers, I think, need to be, it's quite high. I think it's 80% renewable to build a new data center in China. You're going to need to have aluminum and steel and all these heavy energy intensive industries need to consume renewables. That's your mandatory consumption. That's
RPS driven. And then you've got your voluntary consumption. So voluntary consumption, corporate social responsibility initiatives, ESG, right? Companies say, we want to go green. We want to put it in our CSR report that we consumed X amount of renewables last year. We did this on a voluntary basis. We joined RE100. We joined the Science-Based Targets Initiative. And we want to claim that
We are green. That's your consumer tech brands. That's your luxury fashion. And increasingly, a lot of European brands are very aggressive on their renewable energy consumption, including in China. So if you're producing in China and selling to the world, you want to be able to say our production in China was also green. So that's voluntary consumption of green power, but you demand your power retailer to provide you with green electricity. And look, they'll give you a quote for green electricity. ♪
89% of business leaders say AI is a top priority, according to research by Boston Consulting Group.
But with AI tools popping up everywhere, how do you separate the helpful from the hype? The right choice is crucial, which is why teams at Fortune 500 companies use Grammarly. With over 15 years of experience building responsible, secure AI, Grammarly isn't just another AI communication assistant. It's how companies like yours increase productivity while keeping data protected and private.
Designed to fit the needs of business, Grammarly is backed by a user-first privacy policy and industry-leading security credentials. This means you won't have to worry about the safety of your company information. Grammarly also emphasizes responsible AI so your company can avoid harmful bias.
See why 70,000 teams and 30 million people trust Grammarly at grammarly.com slash enterprise. That's Grammarly at grammarly.com slash enterprise. Grammarly. Enterprise-ready AI.
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We started on the nuclear side, we talked coal, but then we're all, you know, there's all these charts that are, you know, great about all this solar being installed. Is the economics of that roughly the same in the sense that it's probably an SOE getting money from an SOE bank? And talk to us about who's funding that and where does it make sense? Like why in some places is solar going to be, or solar wind, part of the answer versus say nuclear?
Right. So when it comes to wind and solar, these are being built differently from nuclear, right? They're not nearly as capital intensive. Also, they can be smaller, they can be more distributed. And so when you look at Chinese wind and solar, of course, you still see SOEs playing a big role, but there are as well IPPs, independent power producers, or just non-SOEs, right? As well as foreign players. So you as a, you know, a foreign investor who, you know, like
BlackRock can come into China and build a power plant if they want to, a wind or a solar farm, no problem. And so anyone can participate in that space if they do their financial analysis and they see the way to attractive project economics. So for Chinese builders, they'll borrow from Chinese banks.
as will Chinese independent borrowers. Then international players, they might borrow from international banks. They might try to borrow from Chinese banks. They can do that as well. They will get market competitive rates. This is a different kind of building compared to nuclear, where instead of it's like a national strategic priority to build a rooftop solar facility, no, that's much more of a commercial market operation.
However, there are some projects in China that are national strategic priority. We talk about those huge desert bases, you know, hundreds of megawatts, gigawatts, hundreds of gigawatts in the middle of the Gobi Desert, coal plants, plus a wind farm, plus a solar farm, plus a huge battery array, all financed by a giant Chinese, built by a Chinese SOE. That's the kind of stuff that that
kind of looks more like a nuclear power plant in the way that they finance and process that. But rooftop solar facility in Eastern China, no, that's very much just a commercial play. If it makes money, if it makes sense, they'll build it.
So when we talk about China's energy landscape or its energy mix, I mean, a lot of what we're talking about, we're pulling in numbers from the Chinese government, right? Like domestic production numbers, domestic usage numbers. And whenever you do that, there's always a certain element of uncertainty or a question mark over them. And there are some people who
Even if you were to say that China's coal production was finally falling, which it isn't, as you know, people wouldn't necessarily believe it. They'd be like, oh, well, China wants you to think that. So I guess my question is, like, how much should we believe some of these stats?
Yeah, and this is going to be always very subjective about how much you want to believe or how much you think is worthwhile believing. My take that I usually go to is like, look, at the top levels, you've got your national bureau of statistics. You've got these national level entities whose – their job mandate is to report statistics as faithfully and as honestly as they can.
All right, fine. You know what? That's their job mandate. I have no latitude to say I think they're doing their job dishonestly or something like that. But I do believe there are many kind of perverse incentives throughout the structure of the reporting economy in China that would create opportunity for misreporting information. When you tie the county governor's promotion
or lack thereof, to his ability to grow GDP in that province or in that county, you're creating the incentive for him to cook the data. When you're creating economic recovery and you announce to – and this happened, this was a real stir – when you announce to a certain city in 2022 that you're going to be evaluating how quickly they've recovered from COVID conditions by seeing how quickly their factories get back up to regular production –
And you know that they're measuring that by seeing how much electricity they consume. Well, all of a sudden you have an incentive. Everyone starts plugging stuff in. Right. So you can say that people are trying to do their jobs honestly. And then you also have people that have been given perverse incentives to misreport their data. I think that's where a lot of the uncertainty comes from. I mean, this is the core problem of central planning. I mean, this is it in a nutshell. And obviously-
The most egregious examples of this were, you know, during the Great Leap Forward and all of the ways that they, you know, the steel production that was melting down literally anything with steel and destroying the economy. In 2024, what are some of the techniques used to avoid sort of egregious juking of the stats so that, yeah, someone's promotion who is tied to electricity consumption can't be sort of egregiously abused like that?
Yeah, well, I mean, famously or perhaps infamously. So I think it ended up, it came out of like a WikiLeaks, something that the former premier Li Keqiang said he didn't look at GDP data from certain provinces. And now that's on the terminal, the Li Keqiang Index. Yeah, the Li Keqiang Index. And he said, I prefer to look at, I think it was rail cargo and electricity consumption. And there was a third item too, right? He said that these items, you know, the people in charge of reporting them, there's, you know,
My assumption is that his logic was there's less incentives to misreport these so that these are the ones I want to look at. And you can maybe come up with your own version of the modern day Li Keqiang index. I think electricity consumption is still fine, but maybe there's some other numbers that you say, look, this is all very centralized reporting. The reason I like electricity is because it's all state grid, right? Those numbers almost all come from state grid and state grid is just a single unified entity. You're not gathering data points from many different companies or
Maybe other stuff like we talk about cargo, right? Again, China Railways. You have one centralized company that would be able to report that information. So if you want to fashion your modern Li Keqiang index, maybe try those types of indices.
So one other element, obviously, of the Chinese energy demand. We've talked a lot about the grid, obviously, and the power of the grid. Then there is the whole world of automobiles, which up until very recently was this totally separate part of the energy system. But now it's around the world, but in particular China. And we talk about Chinese EVs all the time being plugged into the grid. How much do we see the electrification of the Chinese automobile fleet?
Like, A, how electrified is it right now? And B, is it moving the dial on oil consumption? Because this is a pretty big question in the West, right? Like at some point, will EVs become big enough where it meaningfully starts to reduce our oil demand? And even in countries like Norway, I think, like it's still barely moving the dial despite massive electrification. What are we seeing in China right now on that front?
Yeah. I mean, in the major cities, you say Shenzhen, Shanghai, Beijing, places like this, the EV penetration rate is noticeably higher.
And you'll see that they're easily identifiable. They have green license plates instead of the regular blue license plates. So you can just kind of look at them on the street. It's very expensive to get a license plate in Shanghai. Just the license plate itself is expensive. But EVs for a long time were free. Like the license plate was free. So that was a great perk for them to pursue those. And yeah, I think it was new vehicle sales in Shanghai, for example, was 50% electric vehicles in the last reporting session.
And it's really noticeable when you stand on a street corner in Shanghai. And I guess it's noticeable by the lack of the noise. I was just going to say, I heard that everyone goes to Shanghai and says it's really quiet. You know, look, I'm back in New York right now for the first time in a year and I stand on a street corner. It's so loud. And I hadn't really noted the lack of noise.
of the noise because I'm just used to it now. I hear the roar of petroleum-based engines all around me. Yeah, so EVs in the large cities, penetration rates noticeably high. In the smaller cities, still fairly high. When you go out to the more rural areas, it's going to drop off, of course. There's more skepticism about the completeness of the charging network, just maybe some more uncertainty about the
technology itself. You'll hear people in the countryside saying, oh, batteries are dangerous. I saw a video once of an EV on fire, things like that. Similar comments in the United States too. But at the long term, the EV penetration rate will only continue to rise. But is it moving the dial on national oil consumption? I believe so. Now, I'm not an oil specialist, but I think I've seen and I've read recently that Chinese oil imports should have peaked.
Right. That they should have be ready to draw down if, you know, if I'm lying here, may God smite me down. But I think that that was the case and that we see a structural decline in petroleum because of the adoption of EVs. So speaking of EVs, there is a lot of Chinese made corporations.
clean tech that is here in the U.S., including solar panels as well. And this has been one of the frictions of the past few years, which is, you know, the U.S. says it wants cleaner energy and Chinese solar panels and EVs are probably the cheapest forms of that technology around.
And yet there's a lot of, I guess, reluctance to import tons of those into the U.S. And certainly with Trump coming in, it seems like tariffs are on their way. How do you see all of that shaking out into the new year? Yeah, look, in the United States, you're going to decarbonize or you're going to buy green tech at exactly the rate that is economic. Yeah.
Yeah. And so if you have access to very affordable green tech, you'll do it at a faster rate. If you have access to more expensive green tech, you'll do it more slowly. And so I have to assume that if those tariffs go in place, unless alternative producers are able to offer similar quality goods at similar prices, then you're going to slow down your green transition. That's it's
maybe a simple but obvious kind of answer there. On the Chinese side, of course, there will be some pain for exporters, anyone exposed to the United States market. Some solar panels, maybe some EVs, some batteries I think are pretty significant. If those are targeted, yeah, you'd expect to see some pain on the Chinese side. It's already an extremely, extremely competitive environment in China. Most of these producers are in
very thin profit margins hanging on by a thread. It's good for consumers. It's not good for if you're holding those stocks. So this would only just be another bit of pain for them, denial of a potential revenue channel. Since you mentioned EV charging stations,
We have this sort of weird patchwork here, and there's a lot of, a little ambiguity about the U.S. government under Biden has earmarked a lot of money to build EV charging stations. It's a little unclear how much actually got built publicly. There seems to be a view that it hasn't been particularly successful on the public side. What is the structure of the build-out for charging stations in China? Is it publicly owned? What's the deal?
It's all of the above, I guess. So you've got, you know, China State Grid or China Southern Grid, the grid companies, they build charging infrastructure. Some of the EV makers themselves build their own charging infrastructure, maybe like a Tesla supercharger, right? Some of them also build their own battery swap stations. I think NIO is quite famous for having battery swap stations. You can go pretty much any highway rest stop.
in China and you can find a NIO battery swap station. So then there's no time. You just swap it in and out. Yeah, there's a line to wait for the battery swap station if another NIO pulls ahead of you. But besides that, I mean, I think the major thrust, at least the ones that I've seen recently in the Southern Grid region, have been by the grid company itself.
So China Southern Grid, I remember reading last year, they said, we're planning to build 100,000 chargers this year. We're three months in, we're 17,000 chargers in so far. We're on track to finish our goal by the end of the year. And you do see it when you go to regions that have been targeted for those build outs. You can go to fairly rural areas.
in say Guangdong province down in the south and you'll find EV chargers installed there by China Southern Grid and a village where I don't think there are necessarily any EVs but hey they got the infrastructure there because they said we're going to build 100k and so they built 100k David Fisherman so great to chat with you again especially in person and I'm so glad you have other things to worry about besides figuring out how to get food in your apartment really appreciate you coming back on Odd Lots thanks a lot for having me guys
That was really helpful, Tracy. I learned all the things more or less that I wanted to know about how they're building so much nuclear. Yeah.
What's that reaction? Well, it does. It leaves me wondering how like replicable it is in other countries. Right. Because obviously in places like the U.S., we don't really have subsidized finance on the scale that China does. We don't have a lot of cheap and skilled labor at the same time. And we don't have some of the let's put it this way, like regulatory issues.
hastiness maybe in approving these sites and these things? I don't know. Like how replicable do you think it is? No, this is the exact question because it's,
You know, there's some subsidy. The loan program's office exists, but we don't have the same gigantic state-owned banks. And then even if you solve the financing problem and even if you solve the market offtake problem, which is going to be very different, right, because we have market grids in a lot of parts of the country. And so it's hard to sort of make that 40-year commitment that you will get this price.
Then there's all the logistics like, oh, you needed this gigantic crane. That's the biggest crane in the history of. No, you need a big crane to make the big crane. You need to make. So this gets to I mean, this is a point that Jigar Shah makes all the time. But this idea that we're never going to really do this economically. And David just mentioned the sort of daunting economics of Vogel. We're never going to do this economically unless we do it over and over and over and over again. Yeah.
And it feels like the components of what it would actually take to do it over and over and over again is this massive centralized commitment to doing lots of different parts. And, you know, it sounds like the regulatory side of the permitting thing, that seems about the same. And the fact that the public can complain about endangered fish and all that, that's sort of similar. So people complain about annoying local NIMBYs. That doesn't really sound that much different. It sounds like everything else that's different.
I suspect the NIMBYism is slightly different too, but point taken. And I do wonder, like, how do you even go about beginning to redevelop that nuclear muscle memory in the States? It seems really, really hard. Like, okay, we can reactivate some nuclear reactors like we're planning to, but starting like...
new ones from scratch. It just seems like there's such a limited pool of people who are capable of doing that. And then putting in place, as you rightly pointed out, all the offtake agreements and the network and everything needed to kind of make those things financially viable. Yeah.
It seems hard. By the way, I'm glad you asked that question about coal consumption. Because that was really helpful because it's one thing to say, well, another record year for coal consumption. But I guess the way I think about it, at least in the short term, we don't know when the people will be. It's not coal consumption. It's production, just to be clear. Okay, coal production. Yeah. But it's really going to be about like if coal is in fact as a part of the – if it's only growing 1%.
But electricity demand is growing 6% to 7%. That is a good sign, right? Even if it's not bending the curve down yet. Anyway, lots there. It's funny. I will always associate Beijing with lots and lots of burning coal in the winter. By the way, I had heard that about how apparently the big cities now are really quiet, which is pretty cool. And once self-driving cars are everywhere, there will be no honking either. And so...
We can look forward to a future, maybe one day, where we just have very peaceful, quiet big cities. All right. Something to hope for. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Traci Allaway. You can follow me at Traci Allaway.
And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our guest, David Fishman. He's at Pretentious What? Follow our producers, Carmen Rodriguez at Carmen Arman, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. Thank you to our producer, Moses Andam. For more OddLots content, go to Bloomberg.com slash OddLots, where we have transcripts
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