In the Union Budget 2025-26, the Government of India launched a major initiative by introducing the "Nuclear Energy Mission for Viksit Bharat." This mission aims to increase nuclear power capacity and is considered a significant milestone in achieving long-term energy security and climate goals, including the 'Net Zero by 2070' target. The mission further aims to reach 100 GW of nuclear capacity by 2047 with an allocation of ₹20,000 crore. This policy signals a clear intent to involve the private sector in a domain previously reserved for public sector undertakings. Central to this initiative is the introduction of Small Modular Reactors ("SMRs"), a technology intended to supplement India's existing large-scale nuclear power infrastructure. While this move presents opportunities, it also raises significant legal and commercial challenges due to India's existing legislative framework.
SMRs and BSRs in India
SMRs are advanced nuclear reactors with a power generation capacity ranging from less than 30 MWe 1 to over 300 MWe, offering a flexible, scalable, and cost-effective alternative to conventional large nuclear reactors. The inherent advantages of SMRs include enhanced safety features, modular design allowing for factory-based manufacturing, reduced construction timelines and costs, and suitability for various applications like industrial heat, desalination, and hydrogen production, in addition to electricity generation. SMRs can complement renewable energy sources, stabilize the grid, and even repurpose retiring fossil-fuel-fired power plants. Globally, over 80 SMR designs are under development, with some already operational or under construction 2.
To boost the Make in India Mission, India developed its own Bharat Small Reactors ("BSRs"), which are 220 MWe Pressurised Heavy Water Reactors ("PHWRs") with a proven safety and performance record. These BSRs are being upgraded to reduce land requirements, making them ideal for deployment near hard-to-abate industries such as steel, aluminium, and metals, where they can serve as captive power plants to aid in decarbonization efforts. The Bhabha Atomic Research Centre ("BARC") is also indigenously designing and developing other SMRs for broader applications 3. This push for nuclear power is a direct response to India's commitment to net-zero goals and the need for low-carbon energy sources.
Paving the Way for Private Participation
A. The NPCIL RFP Model
The Nuclear Power Corporation of India Limited ("NPCIL"), a government-owned company, invited Requests for Proposals ("RFP") from Indian industries to participate in the development of BSRs for captive use, to facilitate private investment in the nuclear power sector last year, on December 31, 2024.
The RFP outlines a unique public-private partnership model wherein the entity "intending to set up the BSR, (referred as 'USER')", is responsible for providing the land, water, and bearing the entire funding for the project's lifecycle, from capital expenditure to final decommissioning. Here, the USER shall carry out the construction of the plant "under the supervision and control of the NPCIL"; upon completion, the plant shall be taken over by NPCIL for the comprehensive operation and maintenance ("O&M") of the facility.
A key feature of this model is the transfer of the physical Nuclear Power Plant ("NPP") assets to NPCIL, while the USER retains the "beneficial ownership" of the net electricity generated and available after auxiliary consumption. While the primary purpose is for the USER's own captive consumption, the model permits the sale of surplus power. However, the tariff for such a sale will be determined by the Department of Atomic Energy ("DAE") in accordance with the Atomic Energy Act, 1962 ("AE Act"). This framework is designed to leverage private capital for infrastructure development while ensuring that sensitive nuclear operations remain under stringent government control.
Beyond the regulatory framework, this model presents several commercial and financial considerations for potential private investors. The key concerns are 4:
- Funding and Asset Ownership: Since the USERs remain only beneficial owners of the power generated from the plant, it may become difficult for them to arrange financing against the "intangible asset" of electricity rights, rather than tangible plant assets, especially in the absence of collateral guarantees. Lenders' comfort, bankability, and the tax implications of transferring a high-value asset for a nominal sum remain critical unanswered questions.
- Expertise Fees: The RFP mandates an "expertise fee" of 60 paise/kWh payable to NPCIL for providing its expertise and performing the role of the operator. For a standard twin BSR unit, this fee amounts to an annual cost of approximately ₹150 crores, constituting a significant part of the project's lifecycle cost and affecting its overall commercial viability.
- Operational Costs and Reliability: The USERs would bear all operational costs, including O&M, contingent CAPEX for major refurbishments, and charges for fuel, heavy water, and waste management. While the DAE ensures fuel supply, potential investors have sought greater cost transparency, caps on reimbursable expenses, and a guaranteed Plant Load Factor (PLF) to ensure the reliable, uninterrupted power necessary for industrial operations.
- Market Integration and 'Green Energy' Status: There is a strong appeal from potential investors for greater flexibility in selling surplus power on commercial terms and for the formal recognition of nuclear power as "Green Energy." Such a designation would unlock access to financial incentives like green bonds and tax benefits, making the projects more attractive and aligning them with national clean energy policies.
B. Regulatory Concerns and Legal Impediments
The SMR initiative's success hinges on resolving key conflicts with India's established legal framework, which was designed for a state-monopolised nuclear sector.
- The Atomic Energy Act, 1962: The AE Act prohibits private entities from owning and operating nuclear power plants. Section 3 and Section 2(bb) restrict such activities to the Central Government or a "Government company" (where the government holds at least 51% share capital). The NPCIL RFP model, which separates private funding and construction from public operation, is a legal workaround. However, it lacks explicit legislative sanction, creating long-term uncertainty for investors who require a clear statutory basis for their participation.
- The Electricity Act, 2003: A direct conflict exists with the Electricity Rules, 2005, which require a captive user to own at least 26% of the generating plant. As the RFP mandates the transfer of assets to NPCIL, this condition cannot be met, disqualifying the USER from 'captive' status and exposing them to significant grid charges (like cross-subsidy surcharges), thereby undermining the project's financial model. The proposed amendment to these rules, as mentioned in the RFP, remains a critical yet unresolved contingency.
- Jurisdictional Overlap (DAE vs. CERC): The authority to regulate tariffs for nuclear power is contested. In Nuclear Power Corporation of India Limited v. Central Electricity Regulatory Commission (Appeal No. 134 of 2024), the Appellate Tribunal for Electricity ("APTEL") ruled on March 27, 2025, that the DAE holds exclusive jurisdiction. APTEL held that the non-obstante clause in Section 22(1)(b) of the AE Act ("Notwithstanding anything contained in the Electricity (Supply) Act, 1948...") gives it overriding power over the Electricity Act, 2003. Since the Central Electricity Regulatory Commission ("CERC") lacks the primary power to set nuclear tariffs, it also lacks the ancillary power under Section 79(1)(f) to adjudicate disputes related to them. This matter is now under challenge before the Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Limited vs. Nuclear Power Corporation of India Limited (C.A. No. 007238 of 2025), leaving the final authority on tariff regulation unresolved.
- The Civil Liability for Nuclear Damage Act, 2010 (CLNDA): This Act creates significant uncertainty for private suppliers. While it channels primary liability to the operator (i.e., NPCIL), Section 17 grants the operator a 'Right of Recourse' against suppliers for damages arising from defective equipment or sub-standard services. This provision, however, deviates from international conventions that mandate exclusive and absolute operator liability. Compounding this risk, Section 46 states the CLNDA is "in addition to, and not in derogation of, any other law," potentially exposing suppliers to unquantifiable tort claims beyond the Act. Furthermore, the constitutional validity of the CLNDA itself is under challenge in the Supreme Court in Common Cause v. Union of India Department of Atomic Energy (W.P.(C) No. 464 of 2011), which questions the liability cap in Section 6 as a violation of the 'Right to Life'. The pending legislative amendments and these court cases leave the entire liability regime in a state of flux for the time being.
The Path Forward: Strategy, Decarbonisation, and Global Context
For India's SMR initiative to transition from policy to reality, addressing legal, commercial, and strategic challenges is imperative. As a key enabler of industrial decarbonisation and grid stability, the success of this technology depends on creating a coherent and supportive ecosystem.
Globally, the SMR deployment race is accelerating, with countries like China demonstrating rapid construction, while Canada and the US pioneer innovative public-private financing models. These international efforts offer valuable lessons in integrated planning and financial de-risking. India's distinct strategy, focusing on indigenous PHWR-based BSRs for captive industrial use, leverages a proven domestic technology to decarbonise its heavy industries.
To unlock this potential, several key actions must be taken. First, establishing a suitable legal and regulatory framework is crucial. This involves amending the AE Act to legally define private sector participation, aligning the supplier liability regime under the CLNDA with international standards, and resolving jurisdictional conflicts between the DAE and electricity regulators. Second, the commercial framework needs to be financially sustainable and attractive to investors, which requires reviewing proposed fee structures and creating transparent mechanisms for project financing acceptable to lenders. Finally, India should focus on strengthening regulatory and industrial capacity by developing a robust SMR-specific licensing process and fostering a domestic supply chain for modular components.
The development of SMRs presents a new direction for India's energy sector. Its success is contingent on the government's ability to forge a clear, predictable, and stable legal and commercial environment to support this complex undertaking.
Footnotes
1. MWe stands for Megawatts electrical. In this context, 30 MWe indicates that the plant is designed to generate 30 million watts of electricity.
2. NITI Aayog report 'The Role of Small Modular Reactors in the Energy Transition'
3. BARC is developing three types of SMRs for demonstration: a 200 MWe Bharat Small Modular Reactor, a 55 MWe Small Modular Reactor, and a 5 MWth (Megawatt thermal) High Temperature Gas Cooled Reactor primarily for hydrogen production.
4. NPCIL: Pre-Proposal Clarification dated April 17, 2025
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
