Interest During Construction: The Number That Decides the 100 GW Target

The Lift Line

The reactor is not the expensive part. The decade before it earns anything is.

Why This Editorial Matters for Your Exam

Energy questions in GS3 are usually answered with capacity targets and technology names. This piece supplies something better: a cost structure. Once you can explain Interest During Construction, you can answer questions on nuclear power, hydro, metro rail, ports and every other long-gestation asset with the same analytical move. It also sits directly alongside our article on the SHANTI Rules consultation, which covers the legal half of the same reform.

GS Paper 3: Infrastructure, energy; investment models; mobilisation of resources; achievements of Indians in science and technology.

Background and Context

India’s stated goal is to expand nuclear power capacity from around 8 GW to 100 GW by 2047. The authors put the required investment at approximately 20 to 22 lakh crore rupees over two decades.

The cost comparison that frames everything.

But the headline cost is not the problem. Nuclear projects need eight to ten years before generating revenue. International studies suggest financing costs account for 30 to 50 per cent of the levelised cost of nuclear electricity. The government’s Roadmap for Achieving 100 GW Nuclear Capacity by 2047 assumes a borrowing cost of around 9 per cent, at which Interest During Construction alone accounts for nearly 15 to 20 per cent of total project cost.

Who is arguing. Ria Sinha is a senior fellow at the Chintan Research Foundation and Abhinav Jindal is a senior economist. The piece is one half of a fortnightly debate on the real constraint on India’s nuclear ambition; the other half is analysed separately in this edition.

The Analysis

1. Delay is not an inconvenience, it is a cost multiplier. Because interest accrues from the first rupee drawn but revenue begins only at commissioning, every additional year of construction delay compounds financing costs, raises tariffs and erodes project economics. This produces the authors’ most useful conclusion: a reduction in the cost of capital may improve affordability more than a marginal reduction in engineering or equipment cost. Cheaper money beats cheaper concrete.

2. Capital is allocated comparatively. Investors weigh nuclear against renewables, transmission and battery storage, which need less upfront money, build faster and carry lower execution risk. If expected returns are broadly similar, capital goes to the asset with faster capital recycling. A nuclear programme therefore cannot be financed by exhortation; it must change either the return or the risk.

3. Balance-sheet financing cannot reach the target, arithmetically. At the scale envisaged India must mobilise roughly 1 lakh crore rupees every year for more than two decades. Even the largest public enterprises and industrial groups cannot indefinitely lock that much capital in assets that produce no cash for ten years. That is not a statement about willingness. It is a statement about balance-sheet capacity.

4. The money exists; the matching does not. Insurance companies, pension funds and provident funds in India manage assets well over 100 lakh crore rupees, and these are institutions whose liabilities are long-dated, which is exactly what a twenty-year asset requires. Almost none of it reaches nuclear or green infrastructure. The authors’ proposed bridge is a post-commissioning refinancing market: once a plant is built and operating, its risk profile changes completely, so infrastructure bonds, InvIT-like structures or other long-tenor instruments can take out the construction lenders and release bank and sponsor capital for the next reactor.

5. Risk allocation is an incentive question, not an accounting one. The authors argue that delays caused by changes in law, regulatory approvals or force majeure should not be treated like delays caused by weak project management or contractor underperformance. Automatically passing all Interest During Construction to consumers removes any penalty for inefficient execution. Costs should sit with the party best placed to manage them.

The precision that earns marks. Viability gap funding is a capital grant, not a subsidy on output, and it is designed to make a project bankable once rather than to support it forever. The authors’ specific proposal is to stop treating it as one-time budgetary support and to combine it with long-tenor loans, construction-period interest subvention, sovereign or partial credit guarantees and post-commissioning refinancing. The stated objective, worth quoting, is to crowd in commercial capital, not replace it.

Data and Institutions Vault

Prelims-grade facts:

The target and the money:

• India’s nuclear capacity is around 8 GW and the target is 100 GW by 2047.
• The estimated investment requirement is approximately 20 to 22 lakh crore rupees over two decades.
• That amounts to roughly 1 lakh crore rupees every year for more than twenty years.
• The Roadmap for Achieving 100 GW Nuclear Capacity by 2047 assumes a borrowing cost of about 9 per cent.
• Interest During Construction alone accounts for nearly 15 to 20 per cent of total project cost at that borrowing rate.
• Financing costs account for 30 to 50 per cent of the levelised cost of nuclear electricity, on international studies.
• Nuclear projects require eight to ten years before generating revenue.

The cost comparison:

• Utility-scale solar: about 3.5 to 5 crore rupees per MW.
• Coal-fired: about 8 to 10 crore rupees per MW.
• Large nuclear reactors: about 15 to 20 crore rupees per MW.
• Indian insurance companies, pension funds and provident funds manage assets well over 100 lakh crore rupees.

The international comparison:

• France relied heavily on state-backed utility finance.
• South Korea combined utility finance with policy-bank support and standardised fleet construction.
• China used State-owned utilities and banks alongside domestic manufacturing.

The institutions to name:

• The Nuclear Power Corporation of India Limited operates India’s commercial nuclear fleet, and Bharatiya Nabhikiya Vidyut Nigam Limited handles the fast breeder programme.
• The Atomic Energy Regulatory Board is the nuclear safety regulator.
• An InvIT is an Infrastructure Investment Trust, a pooled vehicle that holds operating infrastructure assets and distributes cash flows to unitholders.
• Levelised cost of electricity is lifetime cost divided by lifetime generation and permits comparison across technologies.

⚠️ Watch the trap: Do not treat capital cost per MW as the comparison that settles technology choice. Nuclear runs at a far higher capacity factor than solar and supplies firm power, so cost per MW installed and cost per unit generated give different rankings. The levelised cost, and its inclusion of financing, is the comparison that means something.

The Debate

Finance is the binding constraint. Liability law and technology have both received attention and reform. Neither delivers a rupee. Without instruments that supply twenty-year money at a cost the tariff can bear, the target is a statement of intent, and the arithmetic of 1 lakh crore rupees a year settles it.

Finance is the tractable constraint. The opposing article in the same debate argues that money is the easiest dimension to scope, and that the real exposure is assured fuel supply over a fifty-year plant life for reactor types India cannot fuel domestically. Financing structures can be redesigned in a budget cycle; a fuel-supply dependency cannot.

The reconciliation. They are constraints of different kinds and the distinction is worth making explicitly in an answer. Financing determines whether plants get built; fuel security determines whether they can be run for their design life. A programme can fail at either point, and the sequencing matters: a fuel arrangement negotiated after the capital is committed is negotiated from weakness.

How to Think About This

For any long-gestation project, ask three questions. When does it first earn? Who is holding the capital until then? What happens to that holder if it is late? Those three determine the cost of capital, and the cost of capital determines the tariff. Applied to nuclear, the answers are: after a decade, sponsors and banks, and they absorb compounding interest. Applied to solar, they are: within two years, the same lenders, with minimal exposure. The technology comparison then explains itself.

Diagram-in-Words

Takeaway Box

• 8 GW to 100 GW by 2047, at 20 to 22 lakh crore rupees, which is about 1 lakh crore every year for two decades.
• Financing is 30 to 50 per cent of the levelised cost of nuclear electricity, and IDC alone is 15 to 20 per cent of project cost at 9 per cent borrowing.
• Cheaper capital beats cheaper equipment. That inversion is the single most examinable claim in the piece.
• More than 100 lakh crore rupees sits in long-duration Indian funds that do not reach this sector. The failure is matching, not scarcity.
• France, South Korea, China are the three comparators, and each solved it with a different mix of state utility, policy bank and standardised fleet.

Sources: Hindustan Times

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