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Nuclear power and the mirage of energy security

Sudha Mahalingam

There is a perception that the deal with the U.S. will throw open access to nuclear technologies hitherto denied to India. It might well do that. But that alone is no reason to believe India can quickly add substantial nuclear power capacity and achieve energy security.

INDIA'S ENERGY security was the professed objective of the recently concluded Indo-U.S. nuclear agreement. Briefing Parliament on July 29, 2005, Prime Minister Manmohan Singh said, "India's quest for energy security as an essential component of our vision for our development was a significant theme of my talks." He also underlined the "need for India to have unhindered access to all sources of energy, including nuclear energy, if we are to maintain and accelerate our rate of economic growth... It was in this context that we affirmed the importance of cooperation in the civilian nuclear energy sector." U.S. President George W. Bush echoed similar sentiments when he told his countrymen, "It's in our economic interests that India have a civilian nuclear power industry to help take the pressure off the global demand for energy."

Assuming that President Bush manages to persuade the American Congress to endorse his proposals and the Nuclear Suppliers' Group to loosen its hold over uranium supplies to India, to what extent will this new agreement enhance India's energy security?

Energy security is a catch-all term. It embraces all forms of commercial energy — oil, gas, coal, electricity, renewables. The Indo-U.S. nuclear deal addresses only one small segment of the entire energy spectrum, namely electricity. In India, hydrocarbon fuels — gas, naphtha, and diesel — account for a very small share of actual electricity generation. This is the segment that is sought to be displaced by nuclear power.

There is a perception that the deal will throw open the floodgates to new nuclear technologies, equipment, materials, and fuels, which had hitherto been denied to India. It might well do that. But that alone is no reason to believe India can quickly add substantial nuclear power capacity and achieve energy security. Conservative expectations point to an addition of at least 20,000 megawatts of capacity in the next 20 years, although the diehard optimists hope for much more. But even adding 20,000 megawatts would be difficult to achieve if we consider the ground realities. Foremost among them is the financing constraint. Setting up nuclear reactors is highly capital intensive. We have been building coal plants at around Rs.4.5 crore per megawatt. Combined cycle gas turbines that can run on gas or naptha cost even less, at around Rs.3 crore. But nuclear plants are a different story.

So far, thanks to our splendid isolation from the global nuclear marketplace, India's ability to build nuclear power reactors has come at a rather steep price — at not less than Rs.7 crore to Rs.8 crore per megawatt. This is because the Indian nuclear establishment has had to chart a lonely path to build its own technology trajectory. Time over-runs have been routine and interest during construction (IDC) substantial.

With this deal, we could perhaps hope to cut down on the time needed to build reactors and thus save on IDC. Even so, it is doubtful if we can build new reactors much more cheaply. It would be reasonable to assume that when sourcing reactors from the global market place, India would like to go for models incorporating the latest technology and design. This would entail paying global prices. According to the Nuclear Energy Institute, the overnight cost of AP1000, the Westinghouse model that has just been certified by the U.S. Nuclear Regulatory Commission, is $1400 per kilowatt, which translates to around Rs.6.3 crore per megawatt. To this must be added the transportation costs, the installation fee, maintenance and service charges etc. In article published last year, The Economist magazine pointed out that the realistic cost of building new nuclear plants is around $2000 per kilowatt. Even assuming that India can build the reactor in about five years now, provision must be made for interest during this period of construction. When all costs, charges and fees are added, it is unlikely to cost less than Rs.10 crore per megawatt to build nuclear power stations in future.

If India plans to build 20,000 megawatts of nuclear capacity in the next two decades, we must be prepared to invest Rs.200,000 crore at a minimum over the same period. In other words, we must be able to set aside Rs.10,000 crore every year for the next 20 years. Where will this money come from? Perhaps India could amend the law to allow private participation in atomic power plants. Some years ago, the parliamentary standing committee on energy had recommended a public-private partnership to attract private capital. But even if we amend the law and invite the private sector to participate, it is doubtful whether we can actually get the required level of investments to add even a fraction of this quantity.

As long as State electricity utilities remain insolvent, prospects for attracting private capital will be dim. In the early 1990s we offered extravagant incentives to the private sector through the Independent Power Producer policy, yet failed to attract investors precisely because of the precarious financial health of the utilities. The situation has not changed much since then although we even launched distribution reforms since the mid-1990s. Despite tinkering with the legal, structural, and regulatory framework of the power sector, financial viability continues to elude our power utilities. We have experimented with escrows and other payment security mechanisms, but could not entice investors. Now we have introduced open access, hoping to link the producer directly with the consumer, but as long as average technical and commercial losses remain at their current levels, no investor would be willing to risk his or her capital in power plants, whether nuclear or conventional. The ball is, therefore, back in the Government's court. Having clinched the deal in the teeth of opposition from many quarters, the Government must now rise to this challenge and find the resources somehow.

Once built, nuclear power plants have a much longer life span than their coal or gas counterparts. They could also achieve much higher plant load factors than coal plants. Besides, fuel cost forms a smaller share of the total cost of power compared to gas. But unlike coal, which comes from our own mines, nuclear fuel is now expected to be obtained from international suppliers. While that is a welcome development, the flip side is, uranium prices are subject to the vagaries of the global market place.

In 2005, spot price of uranium jumped a staggering 70 per cent from $21 to $36 a pound. Global uranium supplies are modest compared to coal deposits. Speculators who have been playing havoc with hydrocarbon markets for over a year now have entered the uranium markets as well. A race among nations to build more nuclear reactors could well push up the global market price of uranium, taking some of the sheen off nuclear power. And if the NSG chooses to act as a cartel for economic or political reasons, nuclear power could easily price itself out of the Indian market.

Having invested so much money and resources in developing our fast breeder programme, it is ineluctable that some of the envisaged capacity expansion will come through this route. At present we do not have adequate spent fuel reprocessing facility for feeding future civilian fast breeder reactors. Whether we set up our own additional reprocessing capacity to meet our future plutonium needs or are required to outsource it, we will need to set aside additional resources for the purpose.

Other obstacles

Financing and cost of fuel apart, the nuclear power generation route is beset with other obstacles as well. At present, promoters of nuclear power plants, whether it is the government or the private sector, are liable for unlimited damages in the event of a nuclear accident. No private promoter will be comfortable with such unlimited third party liability. A legislation on the lines of the U.S. Price Anderson Act that limits the liability of the project developer in the event of a nuclear accident is indeed inevitable.

Yet another hurdle that could slow down the expansion of nuclear power capacity is the problem of siting new power plants. While some additional reactors can be installed in the existing sites — for instance, Koodankulam can take four more reactors on the same site — several new sites may have to be identified if we are to realise the goal of adding 20,000 megawatts in the next two decades, a daunting task in a densely populated country like India. At Kalpakkam we began the salutary practice of consulting the views of the local population through a public hearing process. Given the growing awareness about the risks associated with nuclear power plants, getting the people to acquiesce in locating nuclear power plants in their neighbourhood is not going to be easy anymore.

It is tempting to believe that nuclear power is the panacea to India's energy insecurity. India's present installed electricity generation capacity is 124,000 megawatts and even this falls short of demand by at least 50 per cent. By 2025, which is the timeframe envisaged by the Indo-U.S. nuclear deal, India's electricity demand is envisaged to go up to 350,000 megawatts. Even if we overcome all obstacles and manage to realise the promise of 20,000 megawatts of additional nuclear capacity by then, the contribution of nuclear power to India's energy security will remain at best marginal.

(The writer is Senior Fellow at the Nehru Memorial Museum & Library, New Delhi.)

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