Nepal hydropower sector development and challenges

The hydropower sector in Nepal is navigating regulatory, social, and structural challenges. The Independent Power Producers’ Association of Nepal (IPPAN) has advocated for hydropower companies to offer IPO shares to local residents at the face value of Rs 100 per share to fulfill requirements to benefit locals by at least 10% and reduce social disputes.

While installed capacity has reached 4,120 megawatts, the market faces a mismatch between generation and domestic consumption. Managing surplus energy during the wet season remains difficult, with options limited to exporting to India—subject to transmission capacity and regulatory approval—or curtailing generation, which causes economic losses. Delays in the Power Purchase Agreement (PPA) process have left approximately 16,000 megawatts from 281 projects in uncertainty, threatening the national goal of 28,500 megawatts by 2035. Consequently, there is pressure to reform the sector by outsourcing power trading to licensed entities to mitigate financial risks for the Nepal Electricity Authority (NEA).

Despite these structural hurdles, the sector has seen a surge in profitability. During the fourth quarter of the last fiscal year, 106 listed hydropower companies reported a combined net profit of Rs 11.11 billion, up from Rs 1.22 billion the previous year. This growth was driven by lower bank interest rates, increased rainy season generation, and higher consumption due to liquefied petroleum gas shortages. However, the government faces scrutiny over environmental compliance; despite a January 2025 Supreme Court ruling, investigations suggest at least 10 private projects totaling over 360 MW have received permits in protected areas such as Annapurna, Gaurishankar, and Kanchanjunga.