PPA reopening delayed as government opts for deeper review

Nepal’s long-awaited reopening of Power Purchase Agreements (PPAs) has been pushed back, as the government has chosen to conduct further study before making any immediate decision. Minister for Energy, Water Resources and Irrigation, Biraj Bhakta Shrestha, said a dedicated task force has been formed to review the issue, signaling that policy clarity may take more time than expected.

Speaking to energy journalists last week, the minister indicated that the government would move forward based on the recommendations of the study committee. His remarks suggest a cautious approach, particularly at a time when investor confidence in Nepal’s hydropower sector is already under pressure due to prolonged delays and policy ambiguity.

At the center of the debate is the shift in PPA modality introduced in the national budget by former finance minister Bishnu Prasad Paudel. The proposed transition from the “Take-or-Pay” model to a “Take-and-Pay” mechanism has significantly altered the risk landscape for hydropower investments. Under the earlier system, developers were guaranteed payment regardless of whether electricity was consumed, ensuring predictable cash flows and easier access to financing. In contrast, the new model ties payment strictly to actual electricity purchase, exposing developers to demand-side uncertainties.

This policy shift has effectively stalled PPAs, particularly affecting projects below 10 MW capacity, many of which are now in limbo. Industry stakeholders argue that the “Take-and-Pay” approach weakens bankability, making financial institutions more reluctant to lend. As a result, projects that were once considered secure are now facing increased risk premiums and delayed execution timelines.

Despite earlier commitments by the government led by Balen Shah to reopen PPAs within 180 days under its governance reform agenda, progress has been slower than anticipated. The reform plan, approved by the Cabinet, had explicitly aimed to resolve long-pending PPAs—some dating back to 2018—within a fixed timeline. However, the formation of multiple committees and ongoing reviews indicates that implementation remains uncertain.

From an investment perspective, the stakes are substantial. Nepal’s installed electricity capacity has already surpassed 4,000 MW, with the private sector contributing over 3,350 MW. Additionally, projects with a combined capacity of around 5,700 MW are under construction, while applications for approximately 13,000 MW are awaiting PPAs. A further 15,000 MW is currently in the feasibility study phase, reflecting a massive pipeline of potential development.

Financially, private sector investment in completed, ongoing, and pipeline hydropower projects has exceeded NPR 1.31 trillion. However, delays in PPAs have locked significant capital without returns, increasing financial stress on developers and potentially discouraging future investments.

Policy uncertainty has also exposed structural bottlenecks in Nepal’s energy ecosystem. Issues such as land acquisition, forest clearance, and environmental approvals continue to delay project timelines. Although the government has pledged to streamline these processes through a one-door system, practical implementation remains a key challenge.

Meanwhile, the government has outlined broader strategic priorities, including targeting high-value electricity export markets—particularly during evening peak hours—restructuring the Nepal Electricity Authority, and mobilizing diversified financing sources involving public, private, foreign, and diaspora investment. These reforms, if executed effectively, could reposition Nepal as a competitive regional energy exporter.

For now, however, the hydropower sector remains in a state of cautious anticipation. Developers, financiers, and policymakers alike are waiting for a clear and stable PPA framework that can restore confidence and unlock the next phase of energy growth.