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.

Analyzing Pure Energy Limited’s IPO Approval: A Deep Dive into Financial Viability and SEBON’s Decision

In a surprising move, Pure Energy Limited, a solar project with a total installed capacity of 20 MW, has recently received IPO approval from the Securities Board of Nepal (SEBON). This decision comes at a time when SEBON has been hesitant to approve IPOs for numerous hydropower projects in the pipeline. This raises an important question: On what grounds did Pure Energy Limited secure IPO approval, especially when SEBON has been cautious about protecting general investors from potential profitability risks?

 

Price Discrimination in Nepal’s Energy Sector: Challenges and Opportunities

 

The Government of Nepal has set an ambitious target to generate 28,500 MW of electricity by 2035, aiming to boost both domestic consumption and export capacity. This strategic initiative reflects Nepal's commitment to harnessing its hydropower potential, promoting sustainable energy development, and fostering economic growth through regional energy cooperation.

Key Aspects of the 2035 Energy Target

• Domestic Consumption: Approximately 13,000 MW is intended for domestic use, aiming to meet the growing energy needs of the country.
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• Export Capacity: Around 15,000 MW is planned for export, primarily to neighboring countries like India, to enhance foreign currency earnings and support regional energy integration.
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To achieve this target, the Department of Electricity Development (DOED) has already issued licenses for 30,000 MW of hydropower projects and 704 MW of solar projects. However, the current reliance on Run-of-River (RoR) hydropower projects raises significant challenges.

Upper Trishuli 1 Dollar Exchange Risk Explained

While Nepal government is all set to organize another investment summit, Nepal Water and Electricity Development Company (Korean) has threatened to pull out from Nepal after the government asked it to contribute a hefty sum to a hedge fund to be used as a cushion against exchange risk. According to newspaper, the Korean company is ready to contribute only USD 5 million. I was curious if it is sufficient to cover the exchange risk.

Blunders : one after another

The tendency of our Nepali experts introducing new policies without analyzing the impact and crunching numbers is something I have never understood. I wonder if they ever do analysis beforehand (most probably, they don’t).

HIDCL’s right share proposal

Hydroelectricity Investment and Development Limited (HIDCL) has notified Nepal Stock Exchange (NEPSE) regarding the issuance of its 100% right share.

Upper Tamakoshi – a reality check for much hyped hydropower?

After long delays due to various reasons, Upper Tamakoshi is now all set to float its local shares. According to its invitation letter, the projected cost is estimated to be Rs. 66.08 billion. This makes per MW cost of Rs. 14.49 crore. Although the per MW seems to be at the lower side compared to recent market trend (above Rs. 20 crore), the project, however, will not able to keep up its hype due to its lower PPA rate which is at Rs. 4.06 per kWh (average) for the first year.

Compensation clause for 30% dry energy.

With new guidelines effective from this year, there is an option of 30% dry energy for RoR projects. In this option, hydropower projects will receive NRs. 8.40 per kWh for six months (Mangsir 16 – Jestha 15) and NRs. 4.80 for the remaining 6 months (Jestha-16 to Mangsir 15). However, the total dry energy should be more than 30% of the total energy supplied. Any projects suppling dry energy below 30% will be penalized. The formula for such compensation to NEA will be the following

Vicious Cycle and ways to overcome it

It is needless to say that we have not been able to harness 2% of the total hydro potential. With a stable government on the horizon, I think it is the right time to debate on how to exploit our resources.

Financing capacities of Nepali banks

The total loan and advance of Nepalese commercial banks stood at NRs. 1,801.567 billion at the end of Ashwin 2074 or mid October, 2017 (source: NRB). With 5% minimum lending requirement in hydropower sector as provisioned by Central Bank of Nepal, the total loan available is NRs. 90.078 billion. On the other hand, hydropower projects with install capacity of 2,043.6 MW have done the financial closure while 910.31 MW are in the process of securing debt (NEA’s Annual Report 2017). Assuming NRs. 180 million per MW as the construction cost, and 70:30 as Debt equity ratio, the total loan requirement is NRs. 372.19 billion. Even at the 10% as minimum lending requirement (assuming that Central bank will increase the provision), the total funds available will be around NRs. 180.157 billion.

West Seti Hydropower in limbo

It looks like another company is going to pack its bag. China Three Gorges International Corporation, the potential builder of West Seti Hydropower Project (750 MW), showed dissatisfaction over the Power Purchase Rate Policy proposed by Nepal Government. Storage project like West Seti is entitled to receive NRs. 12.40 per kWh and NRs. 7.10 per kWh during dry and wet season respectively.

Budhigandaki vs Upper Karnali vs Arun 3

In a country like Nepal where financial resource is scarce, we have no other option than use it wisely to get optimum benefits. However, things are not applied in Nepal as learned in economic class during our uni days.

Election Manifesto

Having a huge hydropower potential, all politicians, policy makers and experts have come to a common understanding that hydropower development is a key determinant of the growth potential of Nepali economy. As such, all major political parties have declared to exploit the hydro resources in their election manifestos.

Rates for Peaking Run of River

Developers of peaking run of river hydropower project can enjoy better rates. Developer will be entitled to receive Rs. 8.50 to Rs. 10.55 per unit.

Take or Pay PPA

NEA has recently changed the “Take and Pay PPA” to “Take or Pay PPA” All projects including those which have "Take and Pay PPA" are entitled for the amendment provided their Commercial Operation Date (COD) is before mid-July 2026 AD.

PPA IN DOLLAR Too Little Too Late

At a time when the government has announced an ambitious plan to generate 20,000 MW of electricity within a decade, there is the need of a huge foreign investment to fulfill the objective. To lure foreign investment, there is the need to sign the PPA in dollars.

Paradigm Shift

Nepal’s hydro is predominately RoR schemes and almost all pipeline hydropower projects are also RoR.

Foreign Investment Climate

All of a sudden Nepal has been bombarded by summits. In the past few months, different organizers have held several investment/infrastructure summits so hastily. The objective of those summits was to attract foreign investment in the country but the outcomes were not that satisfactory. However, ‘Investment Summit 2017’ organized by Investment Board, Nepal last week did draw world’s attention. Investors pledged a jaw-dropping FDI commitment of US $ 13.51 billion.

Govt plans to consider six months as dry season

Government plans to increase dry season period to six months from four months. This certainly is a good news for IPPs as the RoR projects will be entitled to get dry season rate (Rs. 8.40 per kWh) for six months (December to May). However, it comes with a clause which to me is useless and is not in the favor of project and the country as a whole.

Solar through my lens!

It might be considered as a sin to talk about solar energy in Nepal. The country, rich in hydro resources, is inclined to be blatantly loud and assertive in self-defense. It is not everyone's cup of tea due to its expensive LCOE (levelized cost of electricity). Name-calling is expected when you try to explore the solar opportunity in this country.