#Agenda2014 Energy: Nuclear
For the foreseeable future, India’s growth potential will far outstrip the country’s installed electricity capacity, making debates over which energy source to prefer moot. India will need all possible sources of energy, and nuclear energy should be allowed to compete fairly in the market. However, India has always operated its nuclear energy programme under a shroud of secrecy, perhaps because of the potential military applications Indian reactors have. Yet after the Indo-US nuclear deal in 2008, there is little reason to maintain civilian nuclear facilities under the same cloak of national security.
Unfortunately for India’s economy and citizens, the nuclear renaissance that was expected to occur after the end of India’s nuclear exile has not materialised yet due to short-sightedness, misunderstanding, public apprehension, and failure in government policy. This essay suggests ways in which India can reinvigorate its nuclear dream. Perhaps the most critical among them involves the establishment of clear and effective regulatory mechanisms, modifying the Civil Liability for Nuclear Damage Act (CLNDA), opening the sector to private players, and putting a greater emphasis on thorium research. The cumulative effect of this limited to-do list will usher in an energy renaissance in India and have a multiplier effect on economic growth. Most importantly, these tasks ask merely that the state establish the parameters of safety and responsibility and allow the market to do the rest.
One of the critical areas on which the government needs to focus is transparency and regulatory reform. Obviously, not every operational detail about nuclear facilities, even civilian ones, can be revealed to the public, but the present state is far from reassuring. The difficulty of obtaining even basic data from the Atomic Energy Commission (AEC), such as the gross annual budget for a facility, is daunting. Furthermore, a recent Comptroller and Auditor General (CAG) investigation found that the Atomic Energy Regulatory Board (AERB) was woefully underfunded, understaffed, and did not have adequate regulatory powers to ensure the safety of India’s nuclear assets; it was not even a body independent from the AEC!
As a result, several operational practices lacked formal procedure and planning and little thought was given to emergency contingencies. India today possesses a small nuclear establishment but if this is to grow to the proportions the country will need, clear documentation on operations needs to be created and followed. Since the country has already signed an Additional Protocol with the International Atomic Energy Agency, the international community is now also a partner in developing, testing, updating, and implementing the best safety protocols.
Another hurdle to a nuclear energy renaissance in India is its nuclear civil liability law, the CLNDA. Passed soon after international obstructions to nuclear commerce with India were removed by the Nuclear Suppliers Group (NSG), the act suffers from two immediate lacunae – the channeling of all financial responsibility to the supplier and a fairly high operator liability limit – and a third shortcoming that may be addressed gradually over time – a low cap on total damages compensated for per facility. Amending this act is not going to be easy in the aftermath of Fukushima and India’s experience in Bhopal in 1984, but part of the problem is the way in which the then government tried to push the bill through Parliament, almost furtively. A non-partisan approach is required, and a committee formed of parliamentarians, nuclear specialists, and insurers needs to study the matter thoroughly and present a new report before Parliament.
As has already been evidenced, channeling complete liability to the supplier keeps some firms out of the Indian market and others have raised the price of their reactors to factor in the liability incurred by India’s new law. In fact, even the Indian government’s own Nuclear Power Corporation (NPCIL) has expressed concern that they would have to bear the cost of any indigenous new build. While ostensibly aiming to ensure the quality of foreign equipment, the act hurts domestic players too – NPCIL may be able to absorb the increased cost through a hidden subsidy but potential private players in the future will be dissuaded.
In addition, shunting the entire responsibility to the supplier does not take into account the onus upon the operator to install, operate, and maintain the reactor within specifications. Furthermore, it is unclear why the reactor manufacturer cannot shift the responsibility further up the chain to its suppliers; will a valve maker in Frankenthal or Lanarkshire now be held responsible for hundreds of millions of dollars in damages and cleanup costs in case of a nuclear accident at Trombay?
A second concern is the high liability limit of operators. While many see the ₹500 crore limit as insufficient to deal with a potential nuclear accident, international experience has been that a higher limit is built gradually as the industry expands and the insurance asset base increases. Actuaries calculate insurance limits and premiums based on the number of people covered, frequency of claims, insurance pool, safety protocols, operating track record, and other factors.
Unlike other industries, nuclear insurers have few customers – in India, the government is presently the only client, but even in countries with private nuclear utilities, the number is still small. The US industry, regulated by the Perry-Anderson Act, increased liability coverage from an initial $60 million operator liability and $500 million government guarantees to a liability pool of nearly $13 billion today that includes an operators’ indemnity above private insurance and no government coverage. The government should drop its insistence of a high liability from the outset on operators and favour instead an incremental rise in liability as the domestic industry grows.
Furthermore, insuring individual nuclear facilities is very expensive since a serious accident would probably render the main source of income, the reactor, worthless. Therefore, insurers pool the risk of all facilities to create a larger asset base and allow a greater coverage while simultaneously lowering the cost. Therefore, a large nuclear industry allows a greater asset base and a higher liability limit. India presently has only 14 civilian reactors, making a small collective pool. If nurtured, this pool will increase as more and more reactors come online. It must be noted that reaching out to foreign insurers is also an incomplete solution as India is a new market and until Indian laws and operational procedures are better understood, foreign insurance will be hesitant to enter the country.
A third area which the government should stimulate is the entry of private sector companies into the nuclear energy market. The idea of nuclear technology and fissile material in the hands of private contractors may sound scandalous in a country that has barely completed two decades as a relatively free-market economy, but private nuclear utilities have done quite well globally. Privately owned reactors perform significantly better, with 94% of them achieving load factors about the world average, while barely 44% of government reactors achieve the same benchmark. It was also found that 82% of reactors operating in liberalised nuclear energy markets operated at above average (81%) loads, whereas only 40% did so in regulated markets. Most importantly, as private equity has increased in the nuclear market, industrial safety has too, the accident rate going from 1.04 to 0.33 per 200,000 work-hours.
The private sector has shown its usual resourcefulness in addressing the question of liability too – in countries with a smaller nuclear energy market such as the Czech Republic or Finland, energy conglomerates like the ČEZ Group and Teollisuuden Voima pool their liability and profits. It is not unthinkable that India’s larger business houses may be interested in similar ventures. This is not to suggest a divestment from NPCIL, at least not at this stage; privatisation is only to harness more capital to a sector that can have a multiplier effect on India’s economic growth.
These three cardinal issues – regulatory reform, CLNDA, privatization – have a natural synergy. Making the necessary reforms in the liability laws will encourage more players into India’s nuclear energy sector; privatization will reduce the role of government in business and motivate private players to develop the skills and learn the technology required operating complex facilities; and setting regulatory guidelines will ensure the safe operation of nuclear facilities by all. In addition, these policies will bring more money and manpower to the sector than the government of India can on its own, propelling the country faster towards energy sufficiency and industrial growth. Most importantly, the recruitment of private interest to educate the citizenry about nuclear energy will go a long way in quelling uninformed fears among them.
The last aim of the new government, though not achievable in its five-year term, should be to rejuvenate research in thorium technology. Thorium reactors have the benefit of proliferation resistance, increased safety, and generation of far less nuclear waste – in fact, they can even burn existing waste – over conventional reactors. India remains one of the leaders in this niche field, but as fears of nuclear proliferation and waste grow, thorium has caught the eye of many countries. India needs to push harder on thorium technology, prioritizing the Advanced Heavy Water Reactor (AHWR) already planned and studying other similar technologies such as the Liquid Fluoride Thorium Reactor (LFTR) or Integral Fast Reactor (IFR) which may give better results. The nuclear establishment needs to look beyond domestic shores to the international market and emerge as an important commercial hub for safe nuclear technology. Not only will this sustain domestic nuclear research & development, but it will also give India greater independence from the whims of nuclear cartels such as the NSG.
These goals are largely administrative and achievable in one political term if the right motivation is shown. The government has a minimal physical role to play, relying instead on the enterprise of its people, and can bring about change disproportionate to its effort. There is nary an analyst who thinks that India can grow without significantly boosting its power generation and this is one promising avenue towards energy abundance and security.