Abstract
This essay explores the potential for Public-Private Partnerships (“PPP”) in India’s atomic energy sector as a means to accelerate the country’s clean energy goals. It examines India’s legal framework and identifies its inadequacies. The essay highlights the financial and regulatory challenges that hinder private investment, including high capital costs, long construction periods, and legal restrictions that prevent private entities from directly engaging in nuclear energy production. Drawing comparisons from international practices, it explores de-risking strategies, such as off-take agreements, power purchase agreements, and green finance options, to attract investments in this sector. The essay concludes by emphasizing the importance of regulatory reforms, risk-sharing mechanisms, and innovative financing to facilitate private sector involvement, which can play a crucial role in India’s clean energy transition.
Introduction
In pursuit of its clean energy mission, the Indian government has demonstrated a clear interest in expanding the country’s nuclear power capacity. As part of this initiative, the government has proposed fostering private partnerships to support the development and construction of nuclear reactors, aiming to accelerate the transition towards sustainable energy sources.
Due to security concerns, the Indian government has historically had sole authority over the nuclear industry, which is regulated by the Atomic Energy Act of 1962. The Indian Government has gradually increased its nuclear power producing capacity during the last ten years. It authorized the construction of 12 reactors with a combined 9,000 megawatt (MW) capacity in 2017, thereby, increasing the number of reactors in operation to 22.
Even with these advancements, India still has a long way to go before reaching its 2030 goal of 500 gigawatts (GW) of non-fossil power generation capacity, which was declared during the 2021 COP26 summit. At the moment, nuclear power barely makes up 2% of India’s installed electrical capacity.
Financing continues to be a major obstacle to the rapid development of India’s nuclear sector. Limited private investment has been made in this field due to the inherent uncertainty around costs, especially when new technologies are still in the early stages of development and deployment. In order to overcome the problem of inadequate private investment, the government has proposed to grow India’s nuclear energy industry by promoting private sector collaborations for research and the creation of Bharat Small Reactors, Bharat Small Modular Reactor, and other cutting-edge nuclear technologies. “Bharat Small Reactors” refers to a type of nuclear reactor technology being developed in India, with an emphasis on smaller, safer, and more efficient nuclear power plants. The state must, however, encourage the private sector by enacting simplified regulatory laws that also protect investors’ interests in addition to allowing private investment. This necessitates a thorough revision of the current regulatory structure.
Assessing the current framework
The nuclear industry often has a multi-level legal hierarchy. Outlining the state’s role and obligations in overseeing nuclear activities, the Constitutional level creates fundamental institutional and legal structure. At the statutory level, the Parliament passes laws that regulate nuclear energy, including those pertaining to nuclear facility safety, and security.
Thirdly, it is at the level of regulatory compliance. Regulations give specific technical guidelines and standards to regulate or supervise nuclear operations, guaranteeing adherence to legal requirements and global commitments. In order to preserve safety, security, and efficient governance in the nuclear industry, each level is essential. Because of their specific knowledge and experience, regulatory agencies and expert groups are entrusted with creating regulations. The national legal system then codifies these regulations.
Furthermore, a fourth level with optional guidelines is also available. Although not legally binding, these guidelines are intended to help with the actual application of the established rules and regulations by offering better clarification. This multi-tiered system offers flexibility in application while guaranteeing precise regulation of nuclear operations.
The primary legislation controlling the nuclear industry’s operations is the Atomic Energy Act of 1987. Section 3 of this Act stipulates that the state alone has the authority “to produce, develop, use, and dispose of atomic energy”. Thereafter, the definition of a “government company” was expanded in 2015 to include additional state-owned businesses that are not under the purview of the Department of Atomic Energy(DAE). Consequently, the Nuclear Power Corporation of India Limited [NPCIL] was able to enter into joint ventures with a number of state organizations, such as the Indian Oil Corporation [IOCL] and the National Thermal Power Corporation [NTPC].
The case of Sandeep T.S. vs. Union of India & Ors., in which a physicist from the United States contested a clause in the Atomic Energy Act that forbids commercial organizations from acquiring licenses to handle nuclear materials, was recently heard by the Supreme Court [SC]. The SC bench, which consisted of Justices Manoj Misra, J.B. Pardiwala, and Chief Justice D.Y. Chandrachud, rejected the case, stating that the law rightfully forbids licensing atomic energy to private entities. The Court underlined that these issues are outside the scope of judicial action because they relate to policy decisions.
The Civil Liability for Nuclear Damage Act, 2010 addresses compensation for victims by placing liability on the operator of the nuclear power plant. Nevertheless, this Act has been criticized for a number of reasons, such as the lack of adequate provisions for liability in the event of an accident or regular operational risks; the imposition of a monetary cap on compensation, which may limit the recovery of victims; and the failure to account for the additional costs related to facility decommissioning and clean-up of affected sites.
“Atomic energy” is classified as a sector that is closed to private sector investments in the Consolidated Foreign Direct Investment Policy, which was released on October 15, 2020 by the Department for Promotion of Industry and Internal Trade, Ministry of Corporate Affairs, Government of India. However, for the production of equipment and the supply of materials for nuclear power plants and associated facilities, the policy does not place any limitations on foreign direct investment [FDI] in the nuclear sector.
Under the applicable laws, nuclear power is subject to stringent regulations and needs a license. The Companies Act, 2013 states that a corporation is considered a government company if the Central Government owns at least 51% of its paid-up capital or if it is fully held by a Central Government’s subsidiary. A company’s articles of association must also give the Central Government the power to create and reorganize its board of directors. It is logical to assume that if FDI were permitted in the nuclear industry, it would be restricted to 49% and would need government permission in addition to limitations on foreign control, like the ability to choose directors. Investors may also expect intense scrutiny to ascertain whether foreign corporations possess vital technologies and infrastructure. This examination will take into account things like whether the investment is solely economic in nature and whether foreign governments’ involvement could endanger India’s security or peaceful coexistence.
The fact that India is not a party to the Nuclear Non-Proliferation Treaty is another obstacle to private involvement in the nuclear industry in the nation. India’s ability to be recognised internationally as a responsible nuclear state is severely hampered by this status. Furthermore, the Indian Patents Act does not cover nuclear energy-related ideas; and expropriation arguments are unlikely to be successful given that India has terminated a number of bilateral investment treaties.
The Niti Aayog panel recently proposed changes to India’s foreign investment regulations and the Atomic Energy Act that would allow private, foreign, and domestic enterprises to work with public companies to boost nuclear power generation. However, these modifications have to be carefully balanced against security considerations, especially in light of the potential for nuclear accidents and the spread of nuclear weapons globally.
De-risking of nuclear projects
There are a number of industry-specific barriers that prevent private businesses from participating, even in cases when the law allows it. These challenges are unique to the nuclear industry. Proliferation dangers, high investment prices, safety concerns, long building schedules, and difficulties managing radioactive waste are all important problems. In its recent report, Niti Aayog proposed strategies to safeguard the development of small modular reactors [SMRs] from the uncertainties associated with the sector.
Strong governmental assistance is necessary to de-risk newer technologies like SMRs. This entails putting into practice an extensive framework for project management designed especially for nuclear programs. To minimize ambiguity, the state should make apparent the interface structure that exists within the regulatory process and encourage regulatory harmonization and cooperation in the licensing procedure. In order to handle issues with nuclear responsibility, safeguards, export control measures, and industry participation, a coordination framework must also be built. In addition, the government ought to fund long-term programs that enhance technical education and capacity building.
An investigation by the Comptroller and Auditor General (CAG) of India found that contracts for various projects had been awarded at costs up to 250% higher than market rates, while quality standards were routinely flouted. The CBI initiated criminal investigations into multiple government officials, contractors, and event managers, leading to arrests and widespread public outrage.
Nuclear plant development and establishment require large capital expenditures. The private sector would be encouraged to participate if the government could provide means of securing revenue. The five main stages of a nuclear plant are usually licensing, construction, operation, decommissioning, and decontamination. Although risks associated with political support, public acceptance, and regulatory uncertainty are present at every level, each stage also contains certain dangers that are exclusive to it. For example, hazards associated with factory fabrication, on-site operations, and supply chain management can occur throughout the construction process. Vendors may use cost-sharing agreements to lower their risk throughout the technology development phase. Establishing enforceable contracts that precisely define roles and obligations is also essential. Private sector partners might further protect their investments throughout the project building phase by implementing risk mitigation techniques like long-term price contracts or loan guarantees.
During the operations phase, risks include plant manoeuvrability, cogeneration options, fluctuations in fuel prices, the frequency and duration of unplanned outages, natural events, and security concerns. In the decommissioning and decontamination phase, risks pertain to on-site work, security, plant layout to facilitate dismantling, high-level waste [HLW] management and conditioning, as well as specialized dismantling, cutting, and decontamination techniques. To secure their investments and ensure future revenue certainty, investors can utilize various revenue securing mechanisms, including off-take agreements, PPAs, and contracts for differences [CfD].
A contract known as an offtake agreement is one in which a buyer and a producer agree that the buyer will buy a specific amount of the producer’s future goods. By guaranteeing future revenue and proving that there is market demand for the products, this agreement helps businesses secure project funding for upcoming building, expansion, or new equipment. A corporation can secure a future revenue stream and cement its market position with such an arrangement, especially in a turbulent market. The most important thing the private sector can do is require offtakers to commit funds in a way that ensures the project’s completion costs. In exchange, they would be paid in different ways and granted access to cost projections and incentives that would improve finance availability. PPAs, on the other hand, typically endure between 10 and 20 years; in contrast, the economic lifespan of nuclear projects frequently exceeds 60 years. Off Takers are therefore typically reluctant to take on the risks involved in making such long-term commitments since doing so would need them to have a more comprehensive understanding of their underlying business, the demand for energy, and other supply sources. A completion-cost risk-sharing agreement should contain appropriate rights for an outside assessment of cost projections, as well as deductibles and co-payments to guarantee incentives that are in line. An ownership stake in the nuclear technology business or the energy project, whose value is anticipated to rise when the project is finished, could be used as payment for sharing this risk. Even while the off-taker might not want to stay in the energy business in the long run, if the projects are successful, the equity investment will increase in value, giving them an option to leave.
During the operations phase, risks include plant manoeuvrability, cogeneration options, fluctuations in fuel prices, the frequency and duration of unplanned outages, natural events, and security concerns. In the decommissioning and decontamination phase, risks pertain to on-site work, security, plant layout to facilitate dismantling, high-level waste [HLW] management and conditioning, as well as specialized dismantling, cutting, and decontamination techniques. To secure their investments and ensure future revenue certainty, investors can utilize various revenue securing mechanisms, including off-take agreements, PPAs, and contracts for differences [CfD].
International perspective
Several nations have put different plans into place to encourage the expansion of their nuclear industries. The UK has recently financed nuclear energy projects through the use of PPP’s Regulated Asset Base (RAB) mechanism and the CfD program. The goal of both strategies is to give these projects financial stability, but they vary in how they handle risks, divide expenses, and impact electricity bills for customers. A CfD agreement, for example, was used to fund Hinkley Point C (HPC), whereby the UK government agreed to reimburse the nuclear energy project operator for the difference between a fixed strike price and the going rate for electricity. For HPC, the average UK day-ahead wholesale price was US $121, while the CfD strike price was almost US $150 per MW/h.
Since its inception, the nuclear CfD for HPC have not been duplicated; yet, a revamped method might soon replace it. The EU’s long-term reaction to the energy crisis of 2022 is embodied in the 2024 European Market Reform. The introduction of two-way CfDs, which will provide more consistent income for renewable energy providers such as wind, solar, geothermal, and non-reservoir hydropower, is a noteworthy feature of this change. Notably, nuclear energy has also been included in this paradigm following lengthy negotiations. Given that the reform requires two-way CfD to be required for all publicly funded projects, this inclusion is anticipated to be the main way that new nuclear projects within the EU be funded.
In a two-way Contracts for Difference (CfD) agreement, the generator of energy sells power on the open market and pays the public entity the difference between the market price and a fixed strike price. Member nations have some leeway because any extra money made above the strike price is divided with end users. The Dukovany II project in the Czech Republic, the most recent new nuclear facility to receive EU State aid approval, is the first example of this paradigm being used to new nuclear projects. The remuneration mechanism aims to ensure revenue stability while capping excess compensation through an annual ex-post settlement process. To lower the danger of overcompensation to the beneficiary, this contract will have a 40-year lifespan and be accompanied by a clawback provision that is in place for the lifetime of the project’s operations.
Moreover, the presence of supplementary state aid mechanisms suggests that extra state support, in addition to offtake contracts, will be needed for future nuclear projects to reach financial close.
Although historically the primary focus of sustainable finance in the energy industry has been on renewable energy projects, there is an increasing trend of funding various nuclear energy projects with sustainable bonds and loans. Sustainability-linked finance has many benefits, such as increasing capital availability and investor support, building stakeholder trust, and demonstrating alignment with the Sustainable Development Goals. A couple of Russian commercial banks offered $800 million in ESG-linked loans in 2021 to build the Akkuyu Nuclear Power Plant in Türkiye, which is one of the first examples of sustainable loans for nuclear projects. Furthermore, in 2022, Crédit Agricole CIB gave EDF a bilateral green loan of €1 billion, or roughly $1.1 billion, to help with the upkeep of its nuclear energy fleet in France. More recently, in May 2024, EDF was able to obtain green loans from multiple large international institutions totaling €5.8 billion, or roughly $6.3 billion.
Conclusion
The integration of Public-Private Partnerships (PPP) in India’s atomic energy sector would mark a significant shift from its traditionally state-controlled nature, driven by the growing need for clean and sustainable energy. This initiative is crucial for meeting India’s ambitious goal of 500 GW of non-fossil electricity by 2030.
One of the major challenges in this endeavour is securing the necessary financing, given the high investment costs, regulatory uncertainty, and long gestation periods associated with nuclear projects. The introduction of BSMR and BSR presents opportunities for innovation and expansion. However, attracting private sector participation will require not only easing restrictions but also creating a supportive framework that includes regulatory reforms, risk mitigation, and long-term incentives.
India’s current legal framework, particularly the Atomic Energy Act of 1962 and its subsequent amendments, restricts nuclear power activities to state-owned entities, limiting private sector involvement. Addressing these barriers will require de-risking strategies, such as implementing off-take agreements, PPAs, and CfDs, which have been successful in countries like the UK. The use of sustainable loans and green finance can also attract private investment, as seen in projects like France’s nuclear fleet maintenance.
Ultimately, India must balance the potential for economic growth, energy security, and environmental sustainability with the inherent risks of nuclear energy. This will involve creating a favourable environment for private-sector collaboration while maintaining stringent safety and security standards. The involvement of the private sector, with appropriate risk-sharing mechanisms and government support, can be a game-changer in accelerating the growth of India’s nuclear energy capacity, making it a cornerstone of the country’s clean energy transition. By fostering innovation, ensuring regulatory clarity, and building strong partnerships, India can unlock the full potential of its nuclear sector, contributing to both its energy independence and global climate goals.
About the Authors:
Pradyun Chakravarty, Principal Associate, Legacy Law Offices
Parmi Banker, 4th year student, National Law University Delhi
Editorial Team:
Managing Editor: Naman Anand
Editor in Chief: Abeer Tiwari and Harshita Tyagi
Senior Editor: Tisa Padhy
Associate Editor:
Parmi Banker
Junior Editor: Haripriya Gautam
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