Enabling conditions for nuclear energy: Five key tasks for policymakers

In India we tend to assume that anything to do with outer space is done by governments. But some of the best global knowledge on space travel is in private firms like SpaceX. Once the private sector gets going, it brings energy and innovation of a quality that is not found in state organisations. And so it is with nuclear energy. Private firms now build the safest, lowest-cost and most innovative nuclear reactors of the world. At the time of the Indo-United States nuclear deal, it was clear the big generation plants that could be imported from France, Japan, and the United States had important attractions. In recent weeks, Google and Meta have placed orders for “small modular reactors” (SMRs), 50-Mw captive power plants, from private firms. 

We do not wish to be central planners. Nor do we wish to be great leaders that will choose for India. Indian energy policy should create conditions where private firms may consider whether it is optimal for them to buy such equipment. 

How might this be achieved? What elements of the policy environment are required so that this field can evolve sensibly? This is a field that contains market failure. The usual toolkit of public economics should be trotted out: To understand the market failure, and to envision policy pathways feasible under Indian conditions of state capability, which impose low costs upon the people. Alongside this, there is a need to remove restrictions that have no connection with market failure. The work programme for policymakers lies in five elements. 

1. If a private person in India wishes to buy a nuclear reactor from a foreign vendor, there should be no import restriction or customs duties that interfere in the transaction, subject to security restrictions upon the operator. 

2. Discoms are generally not interested in high-cost sources such as offshore wind or nuclear. Hence, the policy strategy adopted with nuclear should be similar to that used with offshore wind, with a clear mechanism for generators to find their own commercial and industrial customers. 

3. The fuel used in nuclear power plants can be used to make bombs. This creates security challenges. These security challenges are also seen in other sectors. For example, the state plays a leadership role in the safety of air travel, adding this unique contribution to an aviation sector made of private airports, private airlines, and private aircraft manufacturers. Safety for private nuclear energy requires domestic regulations, international safeguards, and enforcement protocols. The regulatory architecture for nuclear security in India will need significant change. 

Amendments to the Atomic Energy Act are required to align Indian standards for the physical handling, storage, and transport of nuclear materials by private persons with the requirements of the International Atomic Energy Agency. A specialised cadre within the Central Industrial Security Force will be required for the security of private nuclear facilities. The Ministry of Home Affairs and the Atomic Energy Regulatory Board will need to develop the capabilities for security clearances for private operators and the regulatory oversight of the safety of private nuclear plants. 

4. The global regime for civil nuclear liability channels full responsibility to the operator, and envisages litigation against the supplier by the operator only. This design gives a full focus for the operator to do a good job of running the plant. It also defines the conditions under which the best global firms will choose to sell in India. 

In India, we got to the Civil Liability for Nuclear Damage Act (CLND Act), 2010, which has deterred foreign suppliers of reactors by placing liabilities upon them. This also complicated the possibilities for buying insurance, because insurers are hesitant about private coverage for supplier liability. 

To address these concerns, the government issued frequently asked questions (FAQs) in 2015, clarifying aspects of the CLND Act. However, FAQs are not considered delegated legislation under the CLND Act and are therefore non-binding on the state. In the Indian legal system, when FAQs have contradicted a statute, courts have ignored them. Foreign suppliers are not reassured by FAQs and have avoided selling into India. Legislative amendment is the only viable solution. 

5. The foundation of a sensible Indian energy industry remains the transition to the price system, where private persons make decentralised decisions on supply and demand, without the control of officials in government or public-sector undertakings. This is the foundation within which multiple energy technologies on supply and demand — including nuclear generation — will fit into the energy system in a rational way. Private persons must form a speculative view about price fluctuation in the future (including optimistic views about high prices in the evening peak) in order to justify their bet of purchasing nuclear reactors. 

The field of nuclear electricity is opening up worldwide with important improvements in cost and safety. Nuclear energy in India could make important contributions to solving the problems of base load and grid stability, and creating conditions for more renewables. It is private persons that must make the risky investment of buying these plants. We are headed to a world with renewables generation and a variety of storage technologies that hold down the evening surge in the price. Private persons who have a speculative view that storage will work poorly, that the evening surge will be quite considerable, may like to place the bet of buying nuclear reactors. Picking winners and choosing technologies are the job of such private speculators and not the state. 

Our problem lies in the deep engagement of the Indian state in electricity and in nuclear energy. What is needed is a clarification of the role of the state, in both areas, where the state focuses on its role in addressing market failure, and in upholding economic freedom in all other respects. A programme of economic reform is required in the five areas sketched above. If good progress is made in these areas in a few years, the highest outcome would be that nuclear reactors would become a choice that private Indian firms can evaluate. 

  Shah is a researcher at the XKDR Forum and Jaitly is partner, Trilegal, and founder, Trustbridge