Industry seeks transparent, predictable tariff framework for nuclear power

Industry seeks market-aligned tariffs, long-term financing and a level playing field, while discoms call for predictability and a two-part tariff structure

With private participation allowed in the nuclear energy sector following the passage of the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act 2025, the industry is seeking a transparent and predictable tariff framework that balances developer returns with competitive prices. It has also urged the government to create a level playing field so that nuclear power is on a par with other sources of electricity.

 

“For economic viability, tariff has to be aligned with market rates, with a maximum levelised cost of electricity (LCOE) of Rs 8 per kilowatt hour (kWh),” Anil V Parab, whole-time director and senior executive vice-president (manufacturing), Larsen & Toubro (L&T), told Business Standard.

 

While Nuclear Power Corporation of India Limited (NPCIL)’s indigenous technology has an average tariff of around Rs 4 per unit, foreign technology is more expensive. “Increasing local content to 100 per cent and apportioning technology fees over 6-10 reactors will make it viable,” he added.

 

Parab also said the government must guarantee a minimum tariff in case the market rate falls below it over the life of the nuclear power plant, citing Finland’s example, where a drop in electricity demand during the pandemic resulted in tariffs crashing to zero. “With long-term investments, the bankability of a project becomes difficult without a guaranteed offtake,” he said.

 

Parab said the industry has highlighted anomalies to government authorities related to the lack of a level playing field. “Though a nuclear power plant has a high upfront capex, tariff calculation must take into consideration its design life of 60 years and a plant load factor (PLF) of over 80 per cent. None of the other energy sources can match this,” he said.

 

Further, on the lines of Europe, where nuclear energy has been declared green energy, allowing access to green bonds, India must follow a similar path in addition to several other financing models that exist for the long term, Parab said.

 

“We have also advocated that financing for nuclear projects cannot follow traditional project financing. It needs long-term funding tenure, with back-end loading of the tariff. Since setting up a plant takes around eight years, a conventional payment structure can strain cash flows,” said Parab.

 

He also added that competing technologies have a GST rate of 5 per cent, compared with 18 per cent for nuclear. “We have suggested to the government to provide viability gap funding for Small Modular Reactors (SMRs), as the technology is new and yet to be proven at scale. The first few reactors are likely to be expensive, and without assured buyers, investment interest may be limited,” Parab said.

 

He added that the industry expects SHANTI Act rules and regulations to be in force by November 2026 and the next level of commercial reforms to be implemented to commercialise the technology. So, private players could be operating nuclear plants starting 2035 in India.

 

Apart from private companies, discoms have also requested the government to consider tariff determination-related issues, Alok Kumar, director general of All India Discom Association (AIDA) and former power secretary, told Business Standard. He highlighted three requirements, including transparency, predictability for distribution companies (discoms), and a two-part tariff structure for flexibility in power dispatch.

 

“If you want investor, discom and consumer confidence, there has to be greater transparency in the tariff-setting process,” he said. Advocating for a two-part tariff structure, he said it will assure nuclear power stations of their capacity charges and they would be more motivated to meet the flexibility requirements of the grid. Meeting the requirement under a single-part tariff will lead to revenue loss, creating a disincentive for them.

 

Currently, nuclear projects supply power under a single-part tariff as these plants operate as baseload stations. However, with greater renewable energy penetration, there will be a need for flexibility in power dispatch depending on solar generation, demand variations and other factors, said Kumar.

 

Moreover, discoms should have visibility on the likely tariff before signing long-term power purchase agreements (PPAs), and if costs rise sharply later, there should be a mechanism to protect them and consumers from the higher burden, he noted. “Nuclear power plants have a history of significant time and cost overruns, which can increase interest during construction and ultimately raise tariffs. There must be proper risk allocation,” said Kumar.

 

“As the share of nuclear power rises, high tariffs for new plants will affect the cost of electricity for consumers. Discoms cannot procure nuclear power without visibility of the tariff,” he added. Kumar also said the government will have to provide strategic support to such plants if there are uncontrollable risks.

 

Another industry executive, Kalirajan S, managing director of EDF Nuclear Projects India, recently said nuclear power could become more competitive. “Being a French company, I do not want to comment on the Indian tariff structure, but in our discussions with various Indian players, it looks like Indian government is looking at refining the tariff structure for nuclear power plants now, which is a little different from the tariff structures followed for other sources of energy. I believe when that refinement is done, it will be more competitive compared to other sources,” he said, speaking at the seventh CII International Energy Conference and Exhibition earlier this month.

 

The SHANTI Act states that the Department of Atomic Energy (DAE) will fix tariffs for supply of electricity from nuclear power plants based on the norms and mechanisms specified by it. It also provides for the tariff norms to be set to recover the cost of fuel, cost of spent fuel management, decommissioning cost and such other services or factors.

 

“The norms and mechanisms for fixation of the tariff for supply of electricity or for charges to be levied for process heat, isotope production, or any other service shall be determined in accordance with the Act based on the recommendations of a Committee constituted by Central Government,” the draft SHANTI Rules, 2026, released last week, state.

 

At present, DAE determines tariffs through individual tariff notifications for nuclear power plants in the country. “The tariff norms allow fixed return on equity (RoE), debt-equity funding, pass-through of foreign exchange variation and incentive for reactors operating beyond initial useful life,” said Anujesh Dwivedi, partner, Deloitte India. Whereas, for other sources of electricity, tariffs are either discovered through competitive bidding or determined through a regulatory process involving public hearings.

 

“In order to promote private sector participation in the sector, it is important that in accordance with SHANTI Act, tariff norms are defined by DAE in a transparent manner, and for a sufficiently long period to provide regulatory certainty to investors,” said Dwivedi. He added that the tariff norms should clearly define the regulatory process to be followed for tariff determination – including approval of project’s capital cost or investments for modification, benchmarking for fuel costs and pass-through of uncontrollable cost impacts like tax, inflation, etc.