Saying No To A Bad Deal: Westinghouse

Earlier this week, Daniel Roderick, the Chief Executive of US-based nuclear technology supplier Westinghouse said he expected to close a deal with India for six nuclear reactors by June 2016 after almost a decade of negotiations. If so, this is one deal India must walk away from. Going by the cost figures available publicly, these reactors are likely to generate electricity too expensive for the Indian market. Apart from the high upfront costs, the US reactors also come with implicit cost - the liability issue - which will be borne by Indian taxpayers.

Westinghouse wants to sell India its new design, AP1000, which has an output of 1,110 megawatts of electricity. This is a new design, and not yet operational anywhere globally - but reactors of this design are being built in the US and in China. One such under construction project is the Vogtle Plant Units 3 & 4 in Georgia, US. The combined cost of these two units was originally pegged at $14.3 billion - which has since gone up to $16.5 billion because of cost and time over-runs -meaning cost per megawatt of this reactor works out to $7.43 million - Rs 49 crore at current exchange rates.

This number is far more expensive than India's indigenously developed nuclear power reactors, or even alternatives available from elsewhere.

India is currently building two new reactors of Russian design, Units 3 & 4 of the Kudankulam Atomic Power Plant. The approved cost of these two reactors, which will have a combined power generation capacity of 2,000 megawatts, as stated in the Indian Parliament, is Rs 39,849 crore. This works out to a capital cost of just under Rs 20 crore per megawatt, or less than half of what Westinghouse units cost. The cost of electricity from these reactors, if they are completed on time, will be Rs 6.3/unit. Simple math suggests that cost of electricity from the Westinghouse units is going to be over Rs 10/unit.

Meanwhile, there is an even cheaper option for nuclear power - India's own indigenous design, developed in the years when India was locked out of the international nuclear market. The cost of this design, also stated in the Parliament, is Rs 14.7 crore per megawatt - this is one third the cost of the American design.

All of these reactors - whether Indian, Russian or US designed, generate the same electricity. As such, there seems to be no logic in going for an imported reactor which is more than three times the cost of locally available options.

Apart from their higher upfront cost, the US built reactors also have an implicit, hidden cost - that of potential liability. India's nuclear liability law, which was drawn up with the bitter experience of the Bhopal Gas Tragedy, holds suppliers of equipment liable for any incidents, if they are at fault. American companies find this law unacceptable. The $100 billion plus clean-up cost of Fukushima in Japan show that nuclear accidents are a real, live risk. Letting a supplier walk away from such a liability means leaving taxpayers to foot the bill in case of a disaster.

At the same time, the falling costs of renewable energy also puts a question mark on the viability of nuclear power altogether. Solar and wind power - which is also carbon free, have been getting cheaper. The past six months have seen developers offering solar power at less than Rs 5/unit. Nuclear power plants require billions of dollars in investments, which get locked up for up to a decade, before generating any returns - a major issue in a poor country such as India. In contrast, renewable power can be put up for any capacity - from 0.01 megawatt to 1,000 megawatt - depending on the need, and can be put up in a few weeks to a few months. This is far more efficient use of capital.

Given the twin issues of high upfront cost versus alternatives and the implicit liability borne by Indian taxpayers, this is one deal India should just walk away from.