Alibaba explores nuclear reactors for Zhejiang's first cloud hub

Alibaba's pursuit of nuclear-powered data centers shows China's hyperscalers are running out of grid capacity to meet the surging electricity demands of artificial intelligence computing.

"Alibaba came to us to discuss building small nuclear reactors," a person at the state-owned nuclear power enterprise told Chinese media outlet The China Business Journal, adding that the Renhe data center in Hangzhou has "relatively large power demand."

The Renhe facility, Zhejiang's first cloud computing data center, provides AI compute for companies including BrainCo and Lingban Technology. The key bottleneck in negotiations is electricity pricing and the supply model, the nuclear firm representative said.

The talks follow similar moves by Microsoft and Google, which have signed power purchase agreements for nuclear energy to meet the 24/7 carbon-free power needs of their data centers. Microsoft in 2023 signed a deal to restart a unit at Three Mile Island, while Google has invested in Kairos Power's SMR technology. Alibaba's exploration of nuclear power could reshape the competitive dynamics of China's cloud market, where electricity costs represent a significant portion of operating expenses.

The Renhe data center serves as the compute backbone for AI startups developing brain-computer interfaces and augmented reality systems, two applications that require sustained high-performance computing rather than intermittent batch processing. This makes the facility a candidate for baseload nuclear power, which runs continuously unlike intermittent renewables.

Alibaba's cloud division, Aliyun, competes directly with Huawei Cloud and Tencent Cloud in China's public cloud market, which IDC estimates was worth $45 billion in 2025. Electricity is the single largest operating cost for data centers, typically accounting for 30% to 60% of total expenses, according to industry estimates. Securing a stable, low-cost nuclear power supply could give Alibaba a structural cost advantage over rivals that rely on grid power or renewable energy with storage.

The nuclear option also aligns with China's broader policy push. Beijing has accelerated approvals for small modular reactors as part of its energy strategy, targeting 50 GW of nuclear capacity by 2030. SMRs, which generate 50 MW to 300 MW per unit, are designed for industrial applications and remote power supply — a natural fit for data center campuses that typically consume 100 MW to 500 MW each. China National Nuclear Corp. and China General Nuclear Power Group are both developing SMR designs, with the ACP100 reactor already under construction on Hainan Island.

Alibaba shares trade at roughly 10x forward earnings, a discount to the 15x average for global hyperscalers, partly due to regulatory overhang and US-China tensions. The Pentagon's June 8 addition of Alibaba to its 1260H list of Chinese military-linked companies — alongside Baidu and BYD — adds another layer of geopolitical risk. However, a successful nuclear power deal could reduce Alibaba's data center electricity costs by an estimated 20% to 30% compared to grid power, according to nuclear industry analysts, potentially adding 100 to 150 basis points to Aliyun's operating margins.

This article is for informational purposes only and does not constitute investment advice.