Nuclear capacity needs new financing tools, patient capital

The problem is not simply that nuclear power is presently expensive. It is that the financial ecosystem required to support such projects has yet to evolve

India’s decision to expand nuclear power capacity from around 8 GW to 100 GW by 2047 represents one of the most ambitious infrastructure programmes in the country’s history. Achieving this target is expected to require investments of approximately ₹20-22 lakh crore over the next two decades. While much of the policy debate has centred on liability laws, reactor technologies and private-sector participation, India’s nuclear ambitions will ultimately depend on whether it can build a financing architecture capable of mobilising capital at unprecedented scale and for sufficiently long durations.

As nuclear projects require 8-10 years before generating revenue, financing becomes a critical determinant of viability. (Shutterstock)

The problem is not simply that nuclear power is presently expensive. It is that the financial ecosystem required to support such long- gestation projects has yet to evolve. A utility-scale solar project in India typically costs ₹3.5-5 crore per MW, while coal-fired plants require around ₹8-10 crore per MW. Large nuclear reactors, by comparison, can cost ₹15-20 crore per MW. Yet the headline capital cost tells only part of the story. Because nuclear projects typically require eight to ten years before generating revenue, financing becomes a critical determinant of project viability.

International studies suggest that financing costs can account for 30%-50% of the levelised cost of nuclear electricity. The Govt’s Roadmap for Achieving 100 GW Nuclear Capacity by 2047 assumes a borrowing cost of around 9%, under which Interest During Construction (IDC) alone accounts for nearly 15%-20% of total project cost. Every additional year of construction delay compounds financing costs, raising tariffs and eroding project economics. While any reduction in cost of capital has a salutary effect on financing costs for the underlying generation technology, in case of nuclear it may have a greater impact on affordability than marginal reductions in engineering or equipment costs.

Private investment will also depend on the underlying risk-return equation. Investors compare nuclear projects with renewable energy, transmission, battery storage and other infrastructure assets that often require lower upfront investment, shorter construction periods and lower execution risk. If expected returns are broadly similar, capital naturally gravitates towards projects with lower opportunity costs and faster capital recycling.

Equally important is recognising that balance-sheet financing alone may not deliver a 100 GW programme. Even India’s largest public enterprises and industrial groups cannot indefinitely lock up enormous amounts of capital in projects that may take a decade before generating cash flows. At the scale envisioned, India would need to mobilise roughly ₹1 lakh crore every year for more than two decades.

Nuclear projects may also require a larger viability-gap-funding (VGF) envelope than solar, wind or battery storage because of their much higher upfront capital needs and construction risk. Rather than relying on one-time budgetary support, VGF could be combined with low-cost long-tenor loans, construction-period interest subvention, sovereign or partial credit guarantees, and post-commissioning refinancing. The objective should be to use public support to crowd in commercial capital, not replace it.

India today has insurance companies, pension funds and provident funds managing assets worth well over ₹100 lakh crore, yet little of this long-term capital reaches nuclear infrastructure or green infrastructure more broadly. A post-commissioning refinancing market through infrastructure bonds, InvIT-like structures or other long-tenor instruments could release bank and sponsor capital for subsequent reactors.

Construction risk also needs sharper allocation. Delays arising from changes in law, regulatory approvals or force majeure should not be treated like delays caused by weak project management or contractor underperformance. Automatically passing all IDC to consumers weakens incentives for efficient execution. Costs should instead be borne by the parties best placed to manage them.

International experience offers useful lessons. France relied heavily on state-backed utility finance; South Korea combined utility finance with policy-bank support and standardised fleet construction; and China has used State-owned utilities and banks alongside domestic manufacturing. India has already undertaken important regulatory reforms to enable wider participation and strengthen domestic manufacturing. Financial innovation can reinforce these reforms. Existing instruments, public financial institutions, infrastructure bonds, credit guarantees, long-tenor lending, insurance and institutional capital provide a base that can be adapted rather than built from scratch. Used in a coordinated manner, they can lower financing costs, recycle capital and make nuclear projects progressively more investable. India’s 100 GW target, therefore, is more a financial innovation challenge.

Ria Sinha is senior fellow, Chintan Research Foundation and Abhinav Jindal is a senior economist. The views expressed are personal

(This piece is part of this fortnight's debate, titled “What is the real constraint on India's nuclear ambition?" The opposing side of the debate can be accessed here)