As many as 281 hydropower projects with a combined installed capacity of 16,425.77 megawatts await power purchase agreements (PPAs) with the Nepal Electricity Authority, leaving developers who have already invested heavily in surveys and project studies uncertain about their future.

The developers claim to have spent between Rs5 million and Rs6 million per megawatt on survey licences, feasibility studies, environmental assessments and other preparatory works before reaching the PPA stage.

Since hydropower projects typically require at least five years to complete after signing a PPA, industry representatives warn that prolonged delays could create fresh electricity supply challenges in the longer term despite Nepal’s current surplus during the monsoon.

The Nepal Electricity Authority (NEA)’s data show that among projects which have completed grid connection agreements and are awaiting PPAs are 102 run-of-river schemes with a combined capacity of 2,556.30MW, 31 peaking run-of-river projects totalling 5,276.30MW, and two storage projects capable of generating 1,491MW.

In addition, 122 run-of-the-river projects with a combined capacity of 1,874.88MW, 19 peaking run-of-the-river projects totalling 1,548.29MW, and five storage projects with a combined capacity of 3,679MW have formally applied for PPAs.

Successive governments have delayed signing new agreements since 2022, citing low domestic electricity consumption, inadequate transmission infrastructure and uncertainty over future export markets.

Although projects below 10MW had previously received PPAs almost automatically, even those projects have seen little progress since the last fiscal year.

The delays compounded after last year's budget introduced the ‘take-and-pay’ model for run-of-river projects, replacing earlier arrangements under which the NEA assumed greater purchasing obligations. However, this year's budget has pledged to immediately resume PPAs for projects below 10MW, although implementation has yet to begin.

The issue has resurfaced as one of the most contentious policy debates in Nepal's energy sector.

During Rajendra Lingden's tenure as energy minister, the Cabinet decided in July 2022 to increase the share of run-of-the-river projects in Nepal's overall generation mix from 30–35 percent to 40–45 percent. The NEA board subsequently approved PPAs for up to 1,500MW of run-of-the-river projects based on the order in which grid connection agreements had been completed.

Later, in February 2024, then-energy minister Shakti Bahadur Basnet announced that all run-of-the-river and peaking run-of-the-river projects below 10MW would be eligible for PPAs. Despite those policy decisions, developers say agreements remain stalled.

Because the NEA retains a monopoly over electricity purchases, developers cannot secure financing without its approval.

The authority currently signs PPAs at Rs8.40 per unit during the dry season—from mid-November to mid-May—and Rs4.80 per unit during the wet season.

Developers say the agreements are essential because banks and financial institutions generally refuse to finance hydropower projects unless a long-term buyer is guaranteed.

The NEA, however, says it must evaluate several factors before committing to new PPAs. These include whether the national grid requires additional electricity, whether transmission lines and substations are available to link power, whether future production can be consumed domestically or exported, and the long-term financial liabilities new agreements would impose on the utility.

So far, the NEA has signed PPAs for 404 run-of-the-river projects with a combined capacity of 6,713.44MW, 51 peaking run-of-the-river projects generating 4,186.81MW, one 140MW storage project and 88 solar projects with a combined capacity of 1,055.14MW.

Stakeholders acknowledge that Nepal's electricity system faces a structural imbalance. Hydropower production surges during the monsoon when rivers swell, but generation drops sharply in winter. Because export markets for surplus monsoon electricity remain limited, the NEA says excessive ‘take-or-pay’ commitments could expose it to significant financial risks by requiring payment for electricity regardless of whether it is consumed or sold.

Industry representatives argue that the government must simultaneously improve the country's generation mix and accelerate investment in transmission infrastructure if Nepal is to sustain hydropower growth while protecting both investors and the power utility.

The debate over new PPAs has intensified as electricity generation continues to outpace growth in domestic demand and exports. Energy Minister Biraj Bhakta Shrestha has repeatedly said that the government will soon decide on reopening PPAs. He also formed a committee to review hydropower licences and PPA policies. Although the committee has submitted its report, the ministry has yet to announce any concrete decisions.

Since April, Shrestha has also directed the Department of Electricity Development to stop issuing new survey licences for hydropower, solar and other power projects pending a policy review. While new applications continue to be accepted, no fresh licences have been issued.

Department records show that applications have been filed for survey licences covering 257 projects with a combined capacity of 12,330.68MW and for generation licences covering another 46 projects with a total capacity of 8,731MW. The department has already issued survey licences for 257 projects with a combined capacity of 12,321MW and generation licences for 360 projects producing 7,336.69MW.

Private developers argue that the current slowdown comes despite Nepal wasting valuable electricity during the monsoon. With around 4,300MW connected to the national grid, they estimate that more than 900MW of power remains unused during peak rainy months because domestic demand and export capacity remain limited.

The NEA, however, avoids describing this electricity as wasted, maintaining that supply and demand must be managed according to system requirements.

Electricity exports have expanded but remain below available capacity. Although Nepal has secured permission to export up to 1,200MW to India and Bangladesh, the NEA says average exports currently stand at about 1,000MW.

Generation capacity continues to grow. During the last fiscal year of 2025-26 alone, 25 hydropower and solar projects with a combined capacity of 560.99MW were connected to the national grid, compared with 434MW added in the fiscal 2024-25. Most of the new generation came from run-of-the-river projects. Although the government had targeted adding 942MW during the year, several projects missed deadlines because of transmission bottlenecks, construction delays and financing constraints.

Among the major additions was the 102MW Middle Bhotekoshi Hydropower Project, promoted by an NEA subsidiary, which began supplying electricity nearly 14 years after construction started. The current fiscal year's budget targets another 1,040MW of additional generation.

Despite rising exports, Nepal still imports electricity during winter because most new projects are run-of-the-river plants that generate far less power during the dry season. Nevertheless, imports have declined significantly.

According to the NEA, Nepal exported electricity worth Rs29.32 billion during the last fiscal year while importing power worth Rs10.22 billion.

Domestic electricity demand is also increasing. Consumption rose by 10.74 percent in the 2024-25 fiscal year, encouraging policymakers to focus on expanding local use alongside exports.

Stakeholders argue that greater domestic consumption would create far higher economic value than exporting electricity itself. "Electricity is a raw material," said Birendra Raj Pandey, president of the Confederation of Nepalese Industries. "If Nepal can consume more electricity at home, we can add value, reduce imports and generate much greater economic benefits."

Pandey said unreliable transmission and distribution infrastructure continues to affect power supply in industrial corridors. "Around 50 to 60 percent of factories still need backup generators," he said. "The government must invest in infrastructure. Instead of exporting energy directly, we should maximise domestic consumption."

Hydropower developers have renewed calls for opening electricity trading to the private sector. Uttam Bhlon Lama, senior vice-president of the Independent Power Producers' Association Nepal, said developers have already invested heavily in projects that cannot proceed without PPAs.

"The NEA cannot refuse to sign PPAs and at the same time prevent the private sector from trading electricity," he said. "If private companies are allowed to trade power, the burden on the NEA will also ease."

IPPAN estimates that Rs1.243 trillion has already been invested in 7,251MW worth of operational and under-construction hydropower projects, while another Rs66.62 billion has been spent on 576 projects in various phases of survey, design work or licensing with a combined capacity of 27,535MW.

Former IPPAN president Ganesh Karki said policy inconsistency has undermined investor confidence. "Last year's budget stopped PPAs for projects below 10MW. This year's budget reopened them, but implementation has still not begun," he said.

NEA Executive Director Dirghayu Shrestha said the authority's board has formed a committee to examine the reopening of PPAs for projects below 10MW and that future decisions will be based on its recommendations.

Nepal currently imports and exports up to 1,000MW of electricity through the 400kV Dhalkebar–Muzaffarpur cross-border transmission line, as well as other 132kV transmission lines. Nepal and India have agreed to increase the import capacity to 1,400MW and the export capacity to 1,650MW through the existing Dhalkebar–Muzaffarpur line and the under-construction 400kV Dhalkebar–Sitamarhi transmission line.

Similarly, Nepal and India have agreed that the under-construction Butwal–Gorakhpur cross-border transmission line will initially enable the import of up to 130MW of electricity and the export of up to 200MW.