Ending State Monopoly: Govt Sets Stage for Private Sector Power Trade Amid Sweeping Energy Reforms

KATHMANDU: In a landmark move designed to dismantle the state’s monopoly on electricity trading, the government is finalizing a comprehensive policy framework to formally integrate the private sector into the national and cross-border power market. Marking a critical pivot from mere electricity generation to strategic market and transmission management, the Ministry of Energy, Water Resources, and Irrigation is now in the final stages of issuing Letters of Intent (LOIs) to private power trading companies.

Briefing the press on the ministry’s progress over the past six months on Wednesday, Energy Minister Biraj Bhakta Shrestha outlined a paradigm shift in Nepal’s energy strategy. For years, the private sector has been restricted to generation, relying entirely on the state-owned Nepal Electricity Authority (NEA) as the sole buyer. Under the new overarching strategy, the government is not only opening the doors for private entities to negotiate and trade power but is also aggressively restructuring how Power Purchase Agreements (PPAs) are awarded.

In a highly anticipated regulatory overhaul, future PPAs will no longer be signed blindly based on generation capacity alone. Instead, they will be strictly tied to real-time grid requirements and market demand. According to the newly proposed criteria, priority will be given to projects that can guarantee supply during the critical dry-season evening peaks. Furthermore, the government will heavily weigh the project's dry-season contribution, the stability of its monthly output, its proximity to existing transmission infrastructure, and the realistic prospects of power evacuation by the time the project reaches its Required Commercial Operation Date (RCOD).

Simultaneously, the government has secured a major breakthrough in cross-border energy logistics with India, significantly widening the bottleneck for international trade. Minister Shrestha announced that bilateral agreements have been reached to upgrade the transmission capacity between the two nations. Nepal’s capacity to export surplus monsoon electricity to India has been upscaled from 1,100 MW to 1,650 MW. Conversely, the capacity to import power during winter deficits has been raised from 1,000 MW to 1,400 MW. While this diplomatic milestone theoretically secures a larger market, energy analysts note that capitalizing on this augmented quota relies entirely on the expedited completion of domestic high-voltage corridors.

Addressing this domestic infrastructure deficit, the government has reported substantial headway in unbottlenecking the national grid. The critical Hetauda segment of the Hetauda-Dhalkebar-Inaruwa 400 kV transmission line is nearing completion, while the Bahrabise-Lapsiphedi 400 kV line has been successfully concluded. Additionally, the newly constructed Bahrabise and New Khimti substations have been brought into partial operation. The ministry has also charged the Markichok-Bharatpur (220 kV), Dhalkebar-Balganga (132 kV), and Lalbandi-Salempur (132 kV) lines, with an ambitious target to complete 12 more transmission projects within the current fiscal year. Providing a lifeline to developers, the ministry also extended the RCOD for 27 hydropower projects, which are in their final stages of construction and hold a combined capacity of 540.47 MW.