Recent legislation raises discussion on whether it can bring meaningful private sector participation in providing nuclear power to India
Will a state of shanti (“calm” in Hindi) encourage private sector participation in India’s nuclear power sector? India’s parliament recently enacted the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India, 2025, bill (SHANTI Act), which among other things permits private companies to obtain licences for the construction and operation of a nuclear power plant (NPP) and the transportation of nuclear fuel within India. But does the SHANTI Act provide a sufficient legal and commercial framework to attract meaningful private sector participation?
Historically, the primary factors that have dissuaded private sector participation within the nuclear power sector outside of India relate to: (1) the risk of a change in policy by the host country during a project’s construction or commercial operation, viz the post-Fukushima Daiichi policy changes by Japan, Germany and Taiwan; (2) the risk of major cost overruns and completion delays; (3) project revenue uncertainty, which undermines an investor’s ability to forecast internal rates of return; and (4) the inability of the nuclear sector to attract debt financing due to the above-mentioned three factors. An overview of the strategies adopted in other countries for mitigating these obstacles follows.
Government options to reduce policy risk
National governments can help mitigate change-in-policy risk by: (1) providing investors with the option to offer their shares in the project company to the national government for predetermined compensation, on a change of law that permanently prevents construction or commercial operation of the project (as per the UK); or (2) remitting “political shutdown compensation” to investors that will fund the shutdown of a nuclear power facility, required by a change of law (currently under consideration in Sweden). The SHANTI Act does not address this issue.
Avoid FOAK nuclear reactor risks
Kelly Malone
Partner
King & Spalding
Tel: +44 20 7551 2173
Email: mkmalone@kslaw.com
As stated in the article captioned “State Procurement of Nuclear Power Plants”, Project Finance International, 2 July 2025, co-authored by Kelly Malone and Helen Cook, investors should tread carefully when procuring nuclear reactor technology – especially when a nuclear technology vendor proposes first-of-a-kind (FOAK) reactor designs. NPP owners have encountered substantial completion delays and cost overruns during the installation of seven of the previous eight large nuclear power plants that had commenced construction since 2005, and incorporated Western reactor designs.
Importantly, all of these projects incorporated FOAK reactor designs other than Barakah 1-4 in the UAE, which included four APR1400 reactor units – reactor technology that a safety regulator had previously approved for construction and commercial operation in South Korea.
The nuclear industry largely views Barakah 1-4 as one of the few examples of the successful delivery of a new-build NPP outside Russia and China in the past 20 years. In procurement terminology, the nuclear industry refers to an existing/ licensed NPP that incorporates the same reactor design/technology as a proposed new-build NPP as a “reference plant”.
So, what lessons can future investors draw from the history of nuclear power procurement in the past 20 years outside of Russia and China? While multiple factors contributed to the cost overruns and delays during the supply and installation of many recent NPPs, the utilisation of FOAK nuclear reactor technology stands out as a key contributor. Requiring nuclear technology vendors to supply nuclear reactors that a vendor has previously incorporated into one or more reference plants in commercial operation will help address this risk.
Amit Kataria
Partner
King & Spalding
Tel: +44 20 7551 7527
Email: akataria@kslaw.com
Governments can also help mitigate this risk by:
- Co-investing through a state-owned company (SOC) with the private sector in a joint venture entity, which reduces a private investor’s exposure to cost overruns in proportion to the level of the SOC’s ownership interest in such an entity (UAE, UK and Sweden); and
- Sharing cost overruns incurred by the private sector during construction through a regulated asset base (RAB) mechanism (UK).
Importantly, the RAB mechanism also pays revenue to the NPP owner during construction (even during periods of significant completion delays), facilitating the distribution of dividends to investors and funding of debt service payments prior to commercial operation. The SHANTI Act adopts the first of these mitigation strategies through the licensing of a joint venture entity owned by an SOC and a private sector company.
Government fixes reduce nuclear revenue
National governments can help mitigate project revenue uncertainty by: (1) for electricity wholesale spot market countries, making long-term, two-way contract-for-differences available to NPP owners, which levelise the forward price for their power production, allowing investors to recover the “essential price components” (i.e., remuneration components that enable a NPP owner to recover the cost of construction, project development, fuel supply, FOREX losses, inflation losses, O&M activities, liabilities to fund reserves for de-commissioning/spent fuel management, senior debt service, capital contributions and an internal rate of return, which corresponds to the level of risk taken by investors) (UK and Sweden); and (2) for single-buyer power purchase agreement (PPA) market countries, structuring long-term PPAs so that offtakers purchase power generation capacity on a take-or-pay basis, and the PPA tariff incorporates the essential price components (including the recovery of prudently-incurred cost overruns during construction) (UAE).
While the SHANTI Act (section 37) envisions that the national government will determine “fixing the tariff for the supply of electricity”, the government will likely do so through a separate notification/regulation in the future. Investors will need visibility of this mechanism before they can make a final investment decision relating to a proposed new-build NPP.
Government support boosts NPP bankability
National governments can help enhance the bankability of new-build NPPs by: (1) adopting the above-mentioned risk/revenue uncertainty mitigation measures; (2) making available a Regulated Asset Base mechanism for the construction period, which allows NPP owners to fund debt service prior to the realisation of revenue from power production; (3) implementing a regulatory framework for the commercial operation period, which makes green bond financing available for NPP owners; and (4) providing credit support for state-owned offtakers/hedge providers that enter into long term PPAs/contract-for-differences with NPP owners. While the SHANTI Act remains silent on most of the above-mentioned bankability points, section 5.3 of India’s Draft National Electricity Policy for 2026 expressly states that, “Nuclear projects should be eligible for green bond funding”, which implies that the Indian parliament will likely promulgate new regulations implementing this policy in the future. In the authors’ view, the absence of state-backed construction period support for NPP owners under the SHANTI Act presents private investors with a big challenge. Even with the implementation regulations for green bond funding in place, green bond markets outside of India have historically had almost no appetite for the risk involved with new-build NPP construction.
To raise debt financing for the construction of NPPs in India, incorporating nuclear reactor technology and other major components manufactured outside of India (in the absence of some form of national support), private sector NPP owners will likely need to rely on a combination of:
- Export credit agency debt financing, made available by the exporting countries; and
- Commercial bank debt financing, backed by project sponsor guarantees in favour of lenders, exposing the balance sheets of these sponsors to substantial completion delay risk, assuming these sponsors have a sufficiently large balance sheet and credit rating (and the desire) to do so.
SHANTI rules needed for investment
While the SHANTI Act creates a legal framework that addresses some of the obstacles that have historically discouraged private sector investment in the nuclear sector, India’s private sector will likely want to see the adoption of implementing regulations that:
- Address the change-in-policy risk;
- Provide tariff guidelines for the supply of nuclear power production that incorporate the essential price components;
- Provide sufficient credit support to fully back-stop the substantial PPA payment obligations of India’s future state-owned purchasers of nuclear power;
- Clarify whether the private sector can procure all types of nuclear reactor technology (i.e. both large and small modular reactors), or just small modular reactors; and
- Provide a clear regulatory framework, disclosure standards and verification mechanisms for the green bond financing of nuclear power resources.
Private investors will also want to see further consideration of state-backed debt service support during the construction period. These additional steps will help ensure meaningful private sector participation during India’s quest to achieve 100GW of nuclear capacity by 2047.
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