Nuclear power expansion: India needs a clear financing strategy

As consultations on the draft SHANTI (Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India) rules wrap up, the focus must shift to financing, the single factor that determines whether reactors get built. The core hurdles are familiar: massive upfront capital, decade-long timelines, and complex supply chain risks spanning fuel enrichment, manufacturing and regulatory approvals.

Because capital costs dominate the final price of electricity, budget overruns are make-or-break. As setbacks from Westinghouse's bankruptcy to delays at Britain's 3.2 GW nuclear power station Hinkley Point C demonstrate, the central threat isn't legal liability but cost overruns landing on balance sheets that cannot absorb them. The decisive question, then, is simple: who carries the financial hit when costs inevitably surge?

Here, the contracting problem sharpens. Nobody can write a complete contract covering a 12-yr build, using first-of-a-kind technology. Too many contingencies, too long a horizon, too little precedent. So, the question reduces to which party has both the balance sheet to absorb overruns, and the horizon to wait for returns. That party is the residual risk holder, and naming it is the heart of financial design.


For six decades, India's answer has been that overruns will be absorbed by the exchequer rather than by investors. This worked - 24 operable reactors, indigenous PHWR (pressurised heavy-water reactor) capability, Kalpakkam fast breeder. But a single risk absorber that is also fiscally constrained produces slow, sequential deployment - roughly 9 GW in six decades.

Reaching the 100 GW target by 2047 will require an estimated ₹25 lakh cr. The treasury cannot absorb the cost overruns for an expansion of this scale on its own. Private participation is, therefore, not just about bringing in modern technology or operational efficiency, but also about bringing in extra corporate balance sheets to share the financial risk. The crucial, unanswered question is precisely which of those risks private investors will be expected to carry.

Read the Bharat Small Reactor (BSR) tender carefully. Private firms were asked to finance and build 220 MW units under Nuclear Power Corporation of India Limited's (NPCIL) control and supervision. Private capital holds the asset risk, the state retains operational control.

For a lender, this is a difficult structure because project finance depends on step-in rights, and a lender cannot foreclose on a reactor it is not licensed to operate. Security, therefore, falls back on sponsor balance sheets with full recourse. Two things follow:

Eligible field narrows to few conglomerates able to carry that recourse. So, a state monopoly is replaced by an oligopoly, rather than a market.

Party bearing residual financial risk has limited control over operational decisions that generate it. The risk does not disappear. It's priced into tariff demands and lands on discoms and consumers.

Instruments for financing reactors are well-understood: regulated asset base treatment, which lets an owner service debt during construction, credit enhancement for discoms entering multi-decade PPAs and green bond eligibility. As of now, India's sovereign green bond framework explicitly excludes nuclear power. It would be desirable to have this amended by the finance ministry.

The capital stack is also not separate from technology and market choices. India is running 3 tracks with incompatible risk profiles under one framework. PHWR is proven technology and genuinely bankable, but constrained by the ownership-control mismatch. Indigenous small modular reactors (SMRs), with ₹20,000 cr allocated and 5 units targeted by 2033, have no operating reference plant. Large imported reactors depend on export credit agencies and come with geopolitical exposure.

Market choice matters, too. A grid-connected reactor's financing rests on discom credit. A captive reactor serving industrial heat or data centre load has an investment-grade offtaker that happens to be its own sponsor, dissolving the counterparty problem, provided the operational control issue is addressed. It is the closest Indian analogue to what is unlocking American SMRs.

India cannot build its nuclear strategy in a bubble, as rising global demand is driving up capital costs and straining a limited supply chain for heavy forgings, pressure vessels and certified welders. Next-generation SMRs face additional bottlenecks, with many designs relying on high-assay low-enriched uranium (HALEU), a fuel severely constrained in both availability and production capacity. Also, because international suppliers prioritise bulk, multi-reactor orders, piecemeal financing will push Indian projects to the back of global order books.

To overcome these barriers and attract investors, India needs targeted policy support. This includes viability gap grants to cover initial shortfalls, extended loan terms, preferential tax treatments, and an official green taxonomy to unlock sustainable global capital. Finally, temporary cost-plus tariffs must be used to guarantee fair developer returns and buffer against unexpected cost spikes.

India has strong, proven capabilities across the entire nuclear value chain. Moving to the next level requires a clear financing strategy. Evaluating any risk-informed model comes down to two questions:

What exact risks are private investors being asked to absorb?

What financial reward will they demand in return?

Madhavan is professor of strategic management, University of Pittsburgh School of Business, US, Nguyen is former executive vice-president, Westinghouse, and Ramanathan is distinguished fellow emeritus, electricity and renewables division, TERI