Deconstructing the Storage Hydro PPA Pricing Framework: A Critical Review of the ERC Discussion Paper

 Introduction: Nepal’s Growing Need for Energy Security

In recent years, Nepal has experienced a substantial increase in electricity generation capacity, mainly driven by run-of-river (RoR) hydropower projects. However, the country’s energy landscape is still heavily dependent on seasonal river flow, leading to surpluses in the wet season and deficits during the dry season. Recognizing this vulnerability, the Government of Nepal has prioritized storage hydropower projects in the national budget, marking a strategic shift toward energy security and grid reliability.

ERC’s New Draft on Open Access — An Example with Cost Calculation

 

ERC has recently released a draft regarding open access. Experts have long demanded that the private sector be allowed to use the transmission line by paying certain fees. So, this draft is a positive step forward. In this article, I try to calculate how much an open access user has to pay if we export 10 MW. 

Misaligned Priorities: Why Nepal’s Hydropower Sector Needs a Regulatory Reset

 

Introduction

Nepal’s hydropower sector is at a critical juncture. While the government claims to prioritize storage-based hydropower projects, real progress is lacking. The recently announced budget emphasizes the importance of storage, but practical and policy-level gaps continue to undermine that objective.

Without decisive changes in regulation, planning, and pricing, Nepal risks wasting its hydropower potential — especially the opportunity to address dry-season energy shortages.

Confusion in 10 percent local shares.

"One hydropower project one company" This is what every hydropower company is doing. But, what if a company wants to develop multiple hydropower projects in various locations/districts without establishing separate companies?

Budget for FY 2073/74

The recently announced budget has heavily focused on infrastructure. A lot of promise has been made. Below is the gist.

New directive for hydropower licensing

Government of Nepal is preparing a new directive for hydropower licensing related to the projects that are in government’s basket. There are 210 hydropower projects with a total capacity of 10,125 MW, according to Department of Electricity Development (DoED). These projects are actually the cancelled hydropower projects. They were previously developed by government, foreign investors and local developers. One of the main reasons for the cancellation was the failure to meet the deadlines.

Hydropower Development Policy, 2001

Hydropower Development Policy, 2001

Earthquake damages over dozen hydropower projects

Generation of 150 MW affected

Income Tax Act

The Financial Act, 2011 (formerly the Income Tax Act 2002) addresses the charges, taxes, duties, and fees relating to revenue administration of the GON.

Income Tax Act  Download the pdf version

Water Resources Act

The Water Resources Act, 1992 was established to promote the optimum utilization, conservation and development of Nepal's water resources, including surface water or underground water, and to make timely legal arrangements for determining beneficial uses of water resources, preventing environmental and other hazardous effects, and keeping water resources free from pollution.

Water Resources Act Download the pdf version

Foreign Investment and Technology Transfer Act

The Foreign Investment and Technology Transfer Act, 1992 was formulated to promote the maximum mobilization of limited capital to increase the competitiveness of Nepal's human capital and natural resources. The act was amended and enacted in August 2000.

Foreign Investment and Technology Transfer Act  Download the pdf version.

Company Act

The Company Act 2006 was amended and enacted in August 2007. The act aims to foster dynamic economic development by promoting investment in industry, trade and business. Download the pdf version.
Company Act 

Electricity Act

In order to develop electricity power by its generation, distribution as well as to standardize and safeguard the electricity services, the Electricity Act 1992 has come into force since then.

Electricity Act Download the pdf version.

Foreign Investment and One-window Policy

The Foreign Investment and One-Window Policy, was formulated in 1992 in order to increase private sector participation and generate additional opportunities for income and employment, particularly in the area of industrial production. The policy aims to increase productivity by importing foreign capital and modern technology management and skills to increase the competitiveness of Nepalese industries in international markets.

Foreign Investment and One-window Policy Download the pdf version

New Foreign Investment Policy.

The Government of Nepal (GoN) is preparing to provide housing facility for investors investing more than US 1 million for the tenor of project operation. Such facility will be borne by Government of Nepal. To encourage foreign investment in the country, Department of Industry (DOI) has decided to add such provision in the foreign investment policy.

Hydropower gets a huge boost with unveiling of this year budget.

This year budget was unveiled yesterday and hydropower tops the list. Presenting the budget in parliament, Finance minister unveiled plan to completely end load-shedding after three years. According to the budget , the government-owned Upper Tamakoshi, Kulekhani III, Chameliya and Upper Trishuli will be adding 560 MW of electricity within three years while 42 projects being initiated by the private sector will bring in another 628 MW. Here are the outline of this year budget for energy sector.

Some useful acts and policies regarding foreign investment.

FOREIGN INVESTMENT ACTS

To promote private Nepalese and foreign investment in the hydropower sector Government of Nepal (GoN) has promulgated Hydropower Policy - 1992, Water Resources Act - 1992/Regulation - 1993, Electricity Act -1993/Regulation -1993. Hydropower Policy – 1992, encourages the concept of Build, Operate, Own and Transfer (BOOT) policy. The policy provides incentive provisions to attract national and foreign investment in hydropower development

Practical approach to get involved in Nepalese hydro for foreign investors

Department of Electricity Department (DoED) issues the survey license in first come first basis. Almost all the projects that are feasible technically and economically have been acquired. So the best practical option is to either do partnership with the local developer or to buy the project by paying lump sum amount to the developer. There is no universal method for determining the rate of the project as it largely depends on the project itself, project status and negotiation skills. However, Super Six projects can be taken into account for the basis. Government of Nepal awarded six projects to Nepalese private developers through competitive bidding in 2010 for the first time which is know as “Super Six”.

Details regarding fees, tenure, taxation policy, royalty, VAT and custom

Here are some details regarding the fee structures and tenure of licenses.

No PPA in US dollar for the time being: Energy Minister

Minister for Energy (MoE) Radha Gyawali has said Nepal Electricity Authority (NEA) has stopped signing power purchase agreement (PPA) in US dollar.