It might be too early to bet on India's nuclear power sector, caution experts

In the US, Microsoft Corp. entered into a 20-year power purchase agreement (PPA) with Constellation Energy Corp. Llc on 20 September to procure electricity for its artificial intelligence data centres, which must operate 24/7 365.

Constellation Energy, whose generation fleet includes nuclear, hydro, wind and solar facilities, is the largest retail producer and supplier of carbon-free energy in the US. It will reopen its 835MW nuclear power plant in Pennsylvania for Microsoft by 2028.

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While Constellation has returned 33%, other nuclear-sector stocks have returned 15% on average since the agreement was announced. The S&P 500 Energy Index has returned around 5% during the same period.

Unlike the US, India doesn't have a single listed pure-play nuclear power company yet. And no major listed company is looking to tap into the nuclear sector for its energy requirements either.

Even the government-owned Nuclear Power Corporation of India Ltd (NPCIL) is unlisted, while NTPC Ltd is still heavily focused on renewables.

Besides, experts are divided, with many cautioning that India's nascent nuclear power segment is riddled with executional and social complexities.

So, what should investors do if they seek early exposure to India's nuclear capabilities?

Look downstream

India’s Atomic Energy Act of 1962 vests complete control of the nuclear power value chain to the government. From the procurement of nuclear fuel and raw uranium to designing and operating nuclear plants, everything is handled by NPCIL, India’s one-stop nuclear shop.

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However, EPC (engineering, procurement and construction) companies are allowed to participate in “non-nuclear" operations, where they help NPCIL set up plants. Listed players like Larsen and Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL) have been extensively involved in constructing nuclear power plants for the government.

Even small and medium enterprises (SMEs) get a slice of the action. Patels Airtemp (India) Ltd, an N-stamp authorised company, manufactures pressure vessels and heat exchangers for nuclear plants.

An N-stamp is a certification from the American Society of Mechanical Engineers (ASME) that allows a company to certify and stamp components, parts and appurtenances used in nuclear facilities.

Konstelec Engineers Ltd, on the other hand, has executed instrumentation and electrical works for NPCIL’s Kakrapar Atomic Power Station. Amic Forging Ltd and DP Wires Ltd produce different welded steel products and steel wires, respectively, used in nuclear plants.

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Kirloskar Electric Co. Ltd, which manufactures AC and DC motors, transformers, switchgear, and electronics, serves the power generation, transmission and distribution, transportation, renewable energy, and nuclear power sectors.

Amic Forging is the best-performing stock among these SMEs, returning almost 300% since its public market debut in December 2023. Patels Airtemp and Kirloskar Electric have returned an average of 73% in 2024. DP Wires and Konstelec have declined 26%, on average.

"Elevated valuations are a concern for most of these SME stocks. Soon, our government might change existing laws to allow known private players to generate nuclear power at a smaller scale," Kranthi Bathini, director of equity strategy at Wealth Mills Securities Pvt. Ltd told Mint.

In the distant future

Bathini is betting that the government will eventually allow private power generators to build and operate small modular reactors (SMR) to meet India’s incremental per capita energy consumption needs and unlock the nuclear power sector's real value.

SMRs are advanced nuclear reactors that are a fraction of the size of traditional nuclear plants and have one-third of their generational capacities. These reactors produce energy from the heat generated by nuclear fission. Their systems and components can be factory-assembled and transported as a unit to a location for installation.

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Only China and Russia have operational SMRs, while US companies are in the process of setting up theirs. Most countries like Canada, France, and South Korea are in the design phase.

To be sure, the availability of such technology is one of the major challenges in India's nuclear power sector. SMRs and the involvement of private players are still stories that are set in the distant future, according to Charanjit Singh, fund manager at DSP Mutual Fund. “This sector is not stable yet. (Project) gestation and execution periods are notoriously high along with the costs of setting up the plants."

“There are no incremental orders (from NPCIL) in the pipeline because the existing ones have not been executed yet (by EPC companies). Existing projects will take a lot of time to generate revenues in the future," Singh added.

The government plans to increase India’s nuclear power capacity to almost 23 gigawatts by 2032 from the current 8GW. But before proceeding, Singh said, it must contend with the social implications and dangers related to this sector.

Since the 2011 Fukushima nuclear disaster, governments around the world have not been keen on experimenting with nuclear energy until recently.

“We (India) will first achieve maturity in renewables, then look at battery storage of energy followed by the production of green hydrogen. Nuclear energy is still down the list. We must be aware that a lot of theme-chasing is happening. There is no need to be bullish on nuclear energy right now."