Nepal Moves to Rescue Delayed Hydropower Projects with New RCOD Extension Framework

Kathmandu: In a significant policy shift aimed at unlocking stalled investment in Nepal's hydropower sector, the Nepal Electricity Authority (NEA) has initiated the process of extending the Required Commercial Operation Date (RCOD) for 218 hydropower projects that have failed to begin commercial electricity generation within their contractual deadlines. Unlike previous decisions, the extension will not be granted on a blanket basis. Instead, the authority has introduced a structured classification system that evaluates each project against objective technical and contractual benchmarks before determining its eligibility.

The decision, endorsed by the NEA Board, reflects an attempt to balance investor confidence with regulatory accountability. Hydropower developers have long argued that many delays were caused by factors beyond their control, including transmission infrastructure bottlenecks, land acquisition disputes, financing delays and force majeure events. At the same time, regulators have faced criticism for allowing repeated deadline extensions without a transparent framework. The new policy seeks to address both concerns by establishing clear standards for future decisions.

Under the new mechanism, projects are divided into four categories based on three principal indicators: physical construction progress, compliance with obligations under the Power Purchase Agreement (PPA), and the status of the RCOD. Projects placed in Groups 'A' and 'B' will be eligible for RCOD extensions, while projects in Groups 'C' and 'D' will face stricter regulatory scrutiny, including the possibility of contractual termination if developers fail to demonstrate meaningful progress.

The scale of the sector illustrates why the policy carries considerable economic importance. According to the NEA, Nepal currently has 320 hydropower projects under construction with a combined installed capacity of 8,292 megawatts. Of these, 150 projects representing 4,491 MW have been classified under Group 'A', while 68 projects with a combined capacity of 1,420 MW fall under Group 'B'. Together, these two categories account for 218 projects, representing nearly 70 percent of all projects currently under construction and almost 72 percent of the country's under-construction generation capacity. The figures indicate that the majority of delayed projects are still considered technically viable and capable of completion if regulatory uncertainties are resolved.

The distinction between Groups 'A' and 'B' also reveals the authority's effort to separate developer-related delays from systemic challenges. Group 'A' includes projects that have largely complied with their contractual obligations and whose RCOD has either not expired or remains contractually manageable. Group 'B', meanwhile, consists primarily of projects delayed because of external factors such as incomplete transmission lines, delayed substations or other circumstances beyond the developers' control. This differentiation signals that the NEA is increasingly recognising infrastructure constraints within the public sector as an important contributor to project delays.

Energy Minister Biraj Bhakta Shrestha described the policy as an effort to facilitate investment rather than penalise developers. Addressing hydropower promoters, he said the government intends to protect private investment while ensuring that developers also fulfil their contractual responsibilities. He emphasised that future RCOD decisions would be made through an institutional process governed by transparent criteria rather than discretionary intervention, a move that could improve predictability for both domestic and foreign investors.

Developers, however, continue to seek broader relief. Representatives of the Independent Power Producers' Association of Nepal (IPPAN) argued that all delayed projects should receive one final RCOD extension under clearly defined conditions. They contend that many projects have encountered circumstances beyond the control of developers, including regulatory approvals, financing constraints and public infrastructure delays, making a uniform opportunity necessary to protect long-term investment in the sector.

The policy also introduces stronger enforcement measures for projects that remain substantially behind schedule. Projects classified under Group 'B' will undergo regular monitoring, with the NEA's Electricity Trading Department authorised to issue implementation directives and review compliance. Their classification may also be revised within six months if construction progress changes. Projects placed in Group 'C', however, will receive a formal Notice of Default under the PPA. Failure to provide a satisfactory explanation or demonstrate adequate improvement could ultimately lead to cancellation of the agreement. Projects under Group 'D', including those that have failed to meet fundamental licensing or financing requirements or whose survey or generation licences have already been revoked, are unlikely to receive further regulatory concessions.

The introduction of measurable construction benchmarks further strengthens the framework. The NEA will assess physical progress based on the 2014 evaluation guidelines, considering the development of critical infrastructure such as headworks, tunnels, penstocks and powerhouses. For solar projects, indicators including land acquisition, panel procurement agreements, letters of credit and the commencement of mounting structures and foundation work will also be recognised as evidence of implementation. By relying on verifiable engineering milestones rather than developer commitments alone, the authority aims to make future decisions more transparent and technically defensible.

Beyond individual projects, the new RCOD policy carries broader implications for Nepal's energy strategy. Hydropower remains the country's largest infrastructure sector and a cornerstone of its ambition to expand electricity exports and attract private investment. A transparent system that distinguishes genuinely progressing projects from inactive ones could improve capital allocation, accelerate project completion and strengthen confidence among lenders. At the same time, the framework signals that repeated deadline extensions without demonstrable progress will become increasingly difficult, reinforcing greater discipline across the industry while preserving flexibility for projects affected by legitimate external constraints.