The eightfold path to India’s nuclear fuel supply security

The eightfold path presents eight principles which will help India secure its nuclear energy infrastructure.

Energy security will continue to remain a critical determinant for India’s growth story. If India expects to resuscitate its economy, the domain of energy security will need immediate and dedicated focus. Moreover, within a few years, 24×7 electricity will become a sine qua non for a dignified life in India just like broadband internet has become an indispensable part of the urban Indian middle class today. As a result, one of the important demands that the politics of tomorrow will be contested on is an uninterruptible, affordable and reliable power supply. The words “energy security in India” need to be seen in this context, as an engine of growth for today and as a natural public expectation tomorrow.

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Nuclear power is one of the significant pathways towards energy security for India. On the demand side, it has the potential to become a clean and reliable option for meeting rising popular expectations. On the supply side, India’s continuous investment in nuclear power for civilian use since the 1960s makes it a familiar territory for scientists and policymakers. Given the vast benefits of utilising the nuclear power option, this paper focuses on presenting a way forward for India to secure supplies for its nuclear energy infrastructure. This is done by outlining an eightfold path for achieving nuclear fuel supply security, which can make nuclear power a major contributor to India’s energy mix.

The eightfold path.

The eightfold path presents eight principles which will help India secure its nuclear energy infrastructure.

Zero, create a national energy supply risk assessment and management framework
The zeroth rule for securing energy supplies of any kind is the formation of an energy supply risk assessment and management framework. This is especially important for India which imports nearly 28 percent of its net energy requirements. Domestically, supply of coal, India’s primary energy contributor has been crippled due to an unclear policy on coal mining thereby raising the risks of inadequate energy supply. Thus, India needs a framework which anticipates risks associated with plausible geostrategic scenarios, so that these risks can be managed. Such a framework will build redundancy in the overall energy supply chain so that perceptible risks can be managed without any significant impact on energy availability.

This framework will also answer key questions: Does India need strategic fuel reserves? Or will it suffice to have monetary liquidity to buy fuel in an emergency? A transparent framework to answer such questions will also serve as a powerful signaling instrument to Indians, as well as to other nations.

One, invest in diversity across the board
With one of the lowest per capita electricity consumption among the developing countries, India simply needs all energy sources that it can procure. At a macro-level, this means being agnostic to any source of affordable energy in the short term: whether it is coal, natural gas, oil, nuclear energy or renewables. At the micro level, India needs capabilities for handling different nuclear fuels: whether it is the domestically available low grade uranium, imported enriched uranium or the indigenous thorium. Diversity leads to a loss in the economies of scale, but that is the price we must pay for energy security. An upside to this diversity is that operating and integrating diverse systems gives our talent pool a competitive advantage akin to the expertise the Indian Air Force (IAF) and Information Technology (IT) fields have developed as a result of their continued exposure to a variety of platforms.

Two, trade with suppliers, buy from trading partners
Since India is short of domestic supply of fuels like uranium, it will have to rely on strategic purchases from other countries. In such a trade dominant scenario, there are broadly two principles that can be operationalised: First. Diversify  trade in multiple sectors with countries which are providers of reactors, fuel or other allied nuclear infrastructure. This will ensure that India has appropriate levers to hedge against the changing geopolitical equations with the supplier nation. Second. Buy nuclear fuel and reactors largely from existing trading partners. This is because countries with robust economic relations with India are less likely to block supplies in a crunch situation.

In practice, this means either diversifying trade relations with suppliers like Nigeria and Iran or substituting them with countries that already have significant trade relations with India.

Three, purchase preferably from competitive markets
As a predominant buyer of nuclear fuel, India needs to manage political risks by purchasing fuel supplies from markets which have multiple players instead of depending on a supply chain which is oligopolised by a few countries. The nuclear fuel is available in the market at all four processing stages: mined uranium, milled yellowcake, enriched uranium and fuel fabricated uranium. Since enrichment facilities are available in only a handful of countries, this is the bottleneck in the supply chain. India can de-risk this by purchasing uranium in all of these intermediate forms. There could be separate contracts with different suppliers at each step of the process, while retaining two or three suppliers for each stage of the fuel cycle, who compete for their business by tender.

Four, make markets more competitive if they are not
The uranium market is a seller’s market which means that India is at a disadvantage from the outset. As a result of this imbalance, suppliers have formed cartels like the Uranium Club and the  Nuclear Suppliers Group (NSG). India should look to work with these cartels if the opportunity costs are manageable. If not, India must consider how these cartels can be dismantled altogether.

Five, fuel is fungible, so use it wisely
India’s has domestic ore but this may not necessarily be the cheapest. The guiding principle for nuclear fuel purchase should be price. As fuel is fungible, it can be put to different uses like power generation or nuclear weaponry. Instead of reserving a certain source of fuel for a particular purpose, it is advisable to use price sensitivity as a purchasing principle.

Six, share the risks between plant communities and user communities
Plant community refers to the populace in the vicinity of a nuclear reactor. User community refers to the populace benefited by nuclear power supply. The problem with power plants is that while the burden of risk falls on the plant community, the user community is largely a free rider. To undo this imbalance, risk needs to be shared by the user community as well. One way is to price this risk and design a public health insurance with a co-payment model that safeguards the plant community in case of any untoward incident. The premium of the insurance will be paid by the user community to a larger extent with the plant community sharing only a small portion of the monetary costs. Further, the government can allow states and local communities to set the risk premium.

Seven, secure supply routes
The risk management framework for energy security needs to factor in the sea/land route availability and safety. India needs to ensure land, sea ports and terminals that allow fuel passage. There must be safeguards against cases of theft and proliferation during transit. India can seek commercial guarantees from suppliers or from groups like the IAEA or NSG.

Eight, invest in the domestic industry
India would do well to hedge against the prospect of trade restrictions or transport disruptions affecting its supply security by investing in a domestic industry that works on all verticals of nuclear power generation: from extraction of indigenous sources of uranium (and other fuels) to the technology of transforming uranium into reactor fuel. The good news is that because so little uranium is needed to produce a large amount of electricity, and a few years supply can easily be stockpiled, nuclear fuel can be considered to be effectively an indigenous energy source.

The eightfold path outlined above will ensure that India’s growth trajectory is no longer impeded due to energy insecurity.

Photo: Wikimedia