Nepal electricity market faces surplus management and PPA delays

Nepal is facing significant challenges in its electricity market due to a mismatch between growing hydropower generation and domestic consumption. While installed capacity has reached 4,120 megawatts, the country struggles to manage surplus energy during the wet season. Current options are limited to exporting energy to India—subject to transmission capacity and Indian regulatory approval—or curtailing generation, which results in substantial economic losses.

There is growing pressure on the government to reform the sector by outsourcing power purchases and sales to licensed traders, as the Nepal Electricity Authority (NEA) faces increasing financial risks. This shift could leverage the Indian market's readiness to absorb hydropower to help manage grid intermittency.

Simultaneously, delays in the Power Purchase Agreement (PPA) process have left approximately 16,000 megawatts of electricity from 281 projects and billions in private investment in uncertainty. Despite previous commitments to expedite these agreements, a lack of coordination between the ministry and the NEA has stalled progress, threatening Nepal's goal of producing 28,500 megawatts by 2035.