The new fiscal budget presented on Thursday has effectively halted the progress of around 17,117 MW of run-of-river (RoR) hydropower projects in Nepal by introducing a major policy shift in the Power Purchase Agreement (PPA) model.
Until now, RoR projects operated under a ‘Take or Pay’ PPA model, where the Nepal Electricity Authority (NEA) had to pay private developers regardless of whether it used the electricity or not. The latest budget, however, proposes a shift to a ‘Take and Pay’ model, meaning the NEA will only pay for the electricity it actually purchases.
Ganesh Karki, President of the Independent Power Producers’ Association of Nepal (IPPAN), warned that this policy change could render investments already made by private developers in RoR projects unviable. He said banks are unlikely to finance projects under the new PPA model, pushing many developments to the brink of cancellation.
According to IPPAN, 17,117 MW worth of RoR projects currently hold licenses from the Department of Electricity Development, with approximately Rs 66bn already invested. These projects are in various stages of development, awaiting PPAs and financial closure. Once fully implemented, total investment could reach Rs 3.4trn. The breakdown includes 2,078 MW of projects already under construction, 6,436 MW awaiting construction permits, 5,079 MW with survey licenses, and 3,521 MW awaiting survey permits.
This shift has frustrated private developers who had expected the budget to align with the government’s recently unveiled Energy Development Roadmap, which aims to generate 28,500 MW of electricity—15,000 MW for export to India and 13,500 MW for domestic consumption.
IPPAN claims the new provision makes it nearly impossible for the private sector to move forward, despite other budget promises like streamlining forest clearance, transmission line construction, and support for reservoir-based projects. Karki argued that unless developers can build the projects, these other incentives become meaningless.
“The government’s move has placed private developers in a position where their investment could drop to zero,” Karki said. “The state should not have issued licenses in the first place if it planned to later change the agreement terms. The Department of Electricity Development continues to issue licenses, but developers are now left in limbo.”
NEA sources said the switch to ‘Take and Pay’ is necessary for the financial sustainability of the authority. The previous model, where payments had to be made even without actual power usage, posed significant financial risks—especially during the monsoon when RoR production exceeds domestic demand and guaranteed exports to India remain uncertain.
IPPAN has strongly opposed the shift and announced plans to launch protests if the decision is not reversed. In a statement released Friday, IPPAN described the new policy as hostile to private investment and a setback for Nepal’s power sector. The group also criticized the government for failing to support the ongoing development of RoR projects, which they claim still constitute a majority of the private sector’s hydropower activity.
IPPAN called for an immediate revision of the policy and demanded a return to the ‘Take or Pay’ model. Failure to do so, they said, would prompt a “strong and decisive” protest campaign.
Currently, Nepal’s total electricity generation capacity is about 3,600 MW, with over 80 percent contributed by the private sector. Of the 17,117 MW of RoR projects awaiting PPAs, the NEA or the government is developing only 190 MW.
IPPAN argues that the new provision contradicts the Energy Development Roadmap and the goals set out in the 16th Five-Year Plan of the National Planning Commission. The association also claims the decision violates existing policies and legislation, including the Electricity Act 1992, the Hydropower Policy 2001, and the National Water Resources Policy.
The organization fears that this policy change will derail over Rs 1.5trn already invested by the private sector, and jeopardize an additional Rs 3trn planned for future investment, pushing the entire sector into uncertainty.
