Critical Juncture for Nepal's Hydropower Sector: PPA Deadline Nears with Vast Projects Awaiting Approval

Nepal's ambitious plan to streamline Power Purchase Agreements (PPAs) for its burgeoning hydropower sector is teetering on the brink, with a critical 180-day deadline fast approaching. The government's action plan, unveiled on Chaitra 15, 2082 (approximately March 28, 2026), aimed to finalize pending PPAs and related decisions within this timeframe. However, with approximately 80% of the allocated period already elapsed, only 35 days remain until the deadline of Ashoj 9, 2083 (around September 25, 2026).

The urgency of the situation is underscored by the sheer volume of projects awaiting resolution. According to data from the Nepal Electricity Authority (NEA), as of mid-Ashar 2083 (early July 2026), a staggering 281 hydropower projects, collectively boasting a capacity of 16,425.77 megawatts (MW), are in various stages of PPA limbo. This includes 102 run-of-river projects (2,556.30 MW), 31 semi-reservoir projects (5,276.30 MW), and 2 reservoir projects (1,491 MW) that have completed grid connection agreements. Additionally, 122 run-of-river projects (1,874.88 MW), 19 semi-reservoir projects (1,548.29 MW), and 5 reservoir projects (3,679 MW) have applied for PPAs, highlighting a substantial pipeline of projects.

A particularly contentious issue has been the delay in opening PPAs for small hydropower projects, specifically those under 10 MW. Despite a declaration in the current fiscal year's budget to immediately facilitate PPAs for these smaller ventures, the announcement has yet to translate into concrete action. The NEA had previously indicated the formation of a study committee to address this, but its recommendations and subsequent implementation remain pending, raising questions about the government's commitment to its own budgetary promises and the 180-day action plan.

The private sector, a crucial driver of Nepal's hydropower development, voices significant concerns over these delays. Developers argue that substantial capital, estimated at NPR 50-60 lakhs per megawatt, is expended during the initial phases of project development, including survey licenses and feasibility studies, even before a PPA is secured. Prolonged PPA delays thus lead to stalled investments, impacting financial closure and hindering the construction process. An study by the Independent Power Producers' Association, Nepal (IPPAN), reveals that approximately NPR 12.43 trillion has already been invested in 347 projects, totaling 7,251 MW, which are either operational, under construction, or in various stages of development.

While the developers face financial strain, the Nepal Electricity Authority (NEA) also navigates a complex set of risks. Signing new PPAs entails a long-term commitment to purchase electricity, obligating the NEA to carefully assess future electricity demand, the adequacy of transmission infrastructure, potential for domestic consumption and export, and its own long-term financial liabilities. Given the predominance of run-of-river projects in Nepal's generation mix, which experience high output during the monsoon and significantly lower production in winter, the NEA must prudently evaluate the financial implications of increasing its purchase obligations, especially concerning seasonal surpluses and deficits.

The broader challenge extends beyond merely signing PPAs to ensuring a robust market and adequate transmission infrastructure. While Nepal's generation capacity is steadily increasing – with 560.99 MW added in the last fiscal year and a target of 1,040 MW for the current fiscal year – the country often faces a surplus of electricity during the wet season. This necessitates a strategic approach to market development and export opportunities, alongside accelerated construction of transmission lines and substations to integrate new projects into the national grid. The dilemma for policymakers is not simply whether to sign PPAs, but rather which projects, with what generation mix, and targeting which markets, to ensure sustainable growth and financial stability.

In a recent development, albeit late in the process, the NEA Board of Directors, chaired by Energy Minister Biraj Bhakta Shrestha, formed a sub-committee led by board member Anshukiran Shahi. This committee has been tasked with developing the necessary criteria for opening PPAs within seven days. The Ministry of Energy claims that once these criteria are approved, the path for signing PPAs with power producers holding generation licenses will be cleared. This belated but crucial step offers a glimmer of hope for the stalled projects, but the clock is ticking rapidly for the government to untangle the complex knot of pending PPAs and ensure the continued growth of Nepal's vital hydropower sector.