Getting into Nepal’s Hydropower? – Few Things to Consider and Opportunity to Invest

The hydropower business is booming in Nepal, mainly due to massive untapped resources and huge power shortages. The data from Department of Electricity Development (accessed July 2013) shows that it has issued Survey License to 674 projects totaling 20,756 MW in capacity. Whereas, 59 projects of 1357 MW capacity have obtained Construction License. Please see the table at the end of the post for detailed information. With the limited transmission capacity and lack of India-Nepal intercountry grid connection, will all these projects get built? I doubt. Then, how do you choose the right project to invest? This post discusses few points to consider in analyzing the project and intends to help potential investors choose the right one.

Things to Consider

The following paragraph considers few questions to consider while choosing hydro projects to invest.

Road: Is there road access to the project location? If not, how far is it from the highway? How much road construction is necessary? How much does it cost?

Transmission lines: Lines are necessary to connect the generated electricity to the national grid. How far is the project from the load center? The longer the length, larger is the line loss. What is the capacity of the transmission lines? Lower capacity transmission lines lose more power than the higher which means 132 kV lines are better than 33 kV or 66 kV lines. This is important because Nepal Electricity Authority pays the project owner for the power

Management team: Team’s experiences both from hydropower and financial fronts. Have they constructed any projects before? Are they capable of building the project on time?

Relationship with local people: Are local residents willing to participate in building the project? Has company set certain percentage of investments exclusively for locals? How is company’s public relations? How much of the private land has to be procured and what is its cost? Are there any residential areas in the project areas? What are the social and environmental impacts of the project and how is company planning to address them?

Hydrology of the project: What is the head of the project? Tunnel alignment? Geology/rock structure, nature of the river, catchment area, source of the river… What is the structure of the dam; length of the dam? How was water data collected? Do they have historical data? Is it possible to compare company’s data with Nepal’s Water and Weather department?

Financial parameters of the project: The total cost of the project and annual projected energy revenue. What is the rate of return? Payback period? Cost per MW? Compare with the similar size projects. Cost prediction cannot be accurate, is there any cost separated for contingency?

Steps for a project development in Nepal

Moreover, the flowchart below gives a brief overview on the hydropower development process.


Step 1: Survey license (5 years) – conduct feasibility study and sign power purchasing agreement (PPA).

  • To conduct feasibility study (Geological, hydrological, drilling, environmental, and social)
  • Company pays annual fee/tax. The amount depends on the size of the project.
  • After the completion of feasibility study, the company starts the detailed project report (DPR).
  • Towards the end of survey license period, company plans to have power purchasing agreement with NEA

There are set of procedures to be completed before PPA agreement is signed.

  • Grid connection agreement to decide which load center to connect
  • Energy lock: finalize the amount of energy that NEA will buy during each month
  • The price of electricity depends on the size of the project. Projects below 25 MW get the posted rate. However, the price of electricity for plants with nameplate capacity of more than 25 MW, the price is negotiated and is based on the cost structure and will not be lower than the posted rate.

Step 2: Financial closure (duration: 2 years after PPA)

  • In order to get the loan for the project, the company has to convince lending agency with the feasibility of the project.
  • At the same time, the company also collects equity. Usually the Debt:Equity ratio is 70:30; that is the source of 70% of the total costs is loan and other 30% comes from equity. The company can also collect equity through issuance of stocks.

Step 3: Obtain generation license (valid for 35 years)

Step 4: Construction starts (3 – 5 years)

  • After the completion of DPR, management decides how to proceed with the construction.
  • Various types of construction – civil, hydro-mechanical, electro-mechanical. Company calls tender for construction

Step 5: Commercial Operation Date (COD)

The above steps give a very brief overview of the hydropower development processes. Potential investors should get all the information about project by considering above questions and steps.

Investing in Nepal’s hydropower is indeed very profitable; but only if you choose the right project. Due to the limited transmission capacity, electricity demand, and lack of inter-country grid connection between Nepal and India, all the projects that have obtained feasibility study licenses will not be constructed. So, I request potential investors to be careful in choosing the project. I would be happy to give my input on the project that you are looking to invest.

Opportunity to invest in an excellent hydro-project in Nepal

Super Dordi Hydropower Project Kha, located in Lamjung, is a run-off-river project with the total capacity of 49.6 MW. I have been following this project for last three years and can tell you that it has a sound management and technical teams. The project has made excellent progress recently: acquired private lands required for the project, civil works has started, and obtained generation license. With the total cost of NRs. 8011.536 million, the first year revenue is projected to be NRs 1641.35 million at the PPA rate of NRs. 5.72/kWh[1]. Simple payback period of the project is 5.1 years. The project will be able to pay all its debt in 10 years while providing dividend of 15% to 25% of the equity during the same time. All the technical and financial parameters make Super Dordi Hydropower Project an attractive one to invest.

Please keep in mind that the Super Dordi project has acquired 80% of the equity needed. The national banks along with Provident Fund and Clean Energy Development Bank are building a consortium to provide loan required for the project. I will be happy to provide more information and answer any questions related with the project. Business Proposal and Feasibility Study Reports are also available upon writing to

[1] This is not the final rate, the rate will be determined once PPA is signed between NEA and People’s Hydropower.


Future of Nepal’s Electricity: long-term policy suggestions

Main points

  • Electricity supply and demand varies at different time intervals
  • Electricity supply side is heavily based on renewable sources increasing the challenges of creating reliable electricity system
  • Demand side management programs, storage systems, trade agreements with India can be some of the long-term solutions

Let’s start with few questions: What determines the supply and demand of electricity? Does the demand remain same throughout the year? What about the supply? Is it possible, technically and economically, to generate electricity as required to serve the load? These are few questions to consider before thinking about developing a reliable and adequate electric system.

In this post, I discuss issues that Nepal’s electricity sector may face in future. One of the previous posts discusses the short-term solutions of current power shortage problems. Moreover, the recent post talks about electricity sector’s possible issues in the future.

If the demand and supply of electricity were fixed at all times, given that there is no shortage, there would not be any issues of providing electricity to the customers. However, the demand of electricity is time dependent – it varies daily, weekly, and also seasonally. Similarly, the generation of electricity, especially since most of it comes from renewable sources, is also dynamic. In Nepal’s case, where most of the electricity comes from runoff-the-river hydropower plants, the amount of electricity generated greatly depends on the amount of water available in the river. In this case, how can Nepal Electricity Authority (NEA) formulate the long term plan of building a sufficient and reliable electric system?

In the following paragraph, I will first discuss the electricity demand and supply variations in Nepal’s energy sector in more detail. Then, I will talk about the possible solutions to minimize/address the variations. Keep in mind that the main objective of NEA should be providing reliable electricity to all customers at the minimum economic cost considering the environmental and social impacts.

Variations in demand

Electric load profile is dynamic; it varies at all times – hourly, monthly, and seasonally. In hourly basis, residential customers’ usage peak during the morning and evening whereas industrial usage may peak during the day time. In Nepal, the residential customer’s load usage is larger than the industrial demand, so the overall peak demand occurs during the evening. The figure 1, taken from Hydro Nepal (Journal of Water, Energy, and Environment, January 2010, Issue 6), shows that on December 31, 2007 the national grid experiences peak demand of 720 MW at 6:15 pm.  Moreover, the figure clearly shows that the demand of electricity varies greatly within a day.


Similarly, the electricity demand also varies seasonally. Since most of the regions in Nepal have moderate temperature, my intuition is that, the electricity grid faces higher demand in winter due to the use of heaters and lights (as it gets dark early). Electric load also varies according to location due to the difference in weather. Hotter areas will have higher electricity demand during the summer whereas colder region uses more power during the winter.

Variation in electricity supply

Almost all of the Nepal’s grid connected electricity is based on the renewable sources. If there is no mechanism of storing electricity (through dams or batteries), the electricity is generated as water/sun/wind is available. Run-off-river hydropower plants generate less than 50% of their name plate capacity during the dry season. Similarly, solar radiation and wind patterns varies during the day. The variations also increases the intermittency issues – the grid should be able to handle the sudden changes of electricity generation. Considering the small size of the national grid, it may not be able to handle big solar and wind capacities unless there is an energy storage mechanisms designed at the individual plant-level.

Is there a solution?

So, we see that both electricity demand and supply vary considerably at different time scales. In this situation, how can we think about a continuous and dependable electricity system? How do we balance variations in demand and supply and at the same time use available resources effectively? We have to address this variations separately for each time-interval by finding the solutions from both demand and supply side. Most of the focus in Nepal is given in the supply side to increase generation, however demand side solutions are also effective and economically justifiable.

The following paragraphs discuss both demand and supply-side solutions at daily and seasonal basis.

Day-to-day basis

In the daily bases, demand response and energy efficiency programs can help smoothen out the differences in the demand and supply of the electricity by encouraging customers reduce their electricity during the high demand periods. We can first target industrial customers since the potential reduction in their energy bills can be huge. The demand-side management and energy efficiency programs are getting popular in developed countries due to improvements in the smart-grid technologies. One of our previous posts discusses the energy efficiency issue in detail.

The supply side solution at the daily basis can be coupling renewable generated electricity (wind/solar/run-off-river) with the storage systems (pumped hydro and grid-scale batteries) so that we can take care of the sudden changes of the electricity at the plant level.

Season-to-season basis

From the demand side, since there is less electricity supplied during the winter, government can charge higher price during the winter than summer. This might help curb some electricity demand. In fact, NEA pays higher rate to buy electricity during the winter season. So, it would make sense to charge customers a higher rate during the dry season.

Addressing the issue from supply side is somewhat challenging in Nepal’s context. It’s debatable whether we install enough generation capacity to meet the summer (high) or winter demand. As we know that, if our electricity system are capable of meeting demand during summer, we won’t have enough supply during the winter. This is currently happening in Nepal as there is more power shortage during the winter than summer. However, if Nepal builds enough capacity to meet the winter demand, then there will be excess supply (which goes to waste) during the summer. Please keep in mind that the electricity infrastructure, both plants and transmission systems, are very costly and time consuming. The ideal solution would be connecting national grids of Nepal with India which would allow trading bulk power between two countries. This way if we even have excess supply during the summer, Nepal could sell power to India requires more electricity during this time of the year.

The other supply side solution can be incentivizing power producers to build pumped storage system. The government, as of now, do not differentiate power produced from run-off-river and pumped storage system. The price structure can be based on the ‘cost-of-service’ rather than the fixed for all types of producers.


All the possible solutions that I pointed out here definitely need a careful consideration. With the recent election and changing political paradigm in Nepal, I believe it’s a high time that we make creating a sustainable electricity system as one of our main goals. We all know that energy and economy of the country are very closely related, and there is no way that we can improve our economy without adequate electricity system.

Future of Nepal’s Electricity : Demand Forecast and Possible Issues

Looking at the current power-crisis of Nepal, it is even hard to make future energy plans without addressing present power shortage problems. However, I believe that it’s a high time that we have a long-term electricity plan by keeping the future demand growth in mind.


Nepal Electricity Authority (NEA) estimates that the electricity demand will increase steadily at the average annual growth of 9 % and peak demand will increase by 8.85% in the same period. Energy (kWh or MWh or GWh) is the total hourly electricity demand summed for each year year, whereas system peak load (kW or MW or GW) is the maximum amount of electricity demanded at any given time of the year. For the smooth supply of electricity, the utility company (NEA) has to be able to meet both total annual electricity demand and also be able to handle the peak load demand.
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Nepal Energy in the News: August 15-31

Power wastage amounts to 50m units due to lack of transmission lines (The Kathmandu Post, accessed September 4, 2013)

I have raised the issue about the consequences of lack of transmission infrastructure in Nepal.  NEA reports that the total loss due to insufficient transmission lines in 2012-13 fiscal year is worth of Rs 420 millions. The posts cites Bhuwan Chettri, chief of Load Dispatch Center (LDC), and writes that NEA’s loss was due to the delay  in construction of three power line projects, including Khimti- Dhalkebar (220kv), Suchayatar-Matathirtha-Kulekhani – 2 (132kv) and Bharatpur-Hetaunda (220kv). The delay affected power generated from hydro power projects like Kaligandaki, Marysandi, Madhya Marsyandi, Trishuli, Chilime, Indrawati and Spring Khola to connect to the national grid. The news reiterates the fact that Nepal should focus on building new transmission and distribution lines to accommodate additional generation if it seriously wants to solve the energy crisis.

Power Grid preparing road map for SAARC electricity grid (The Economic Times, accessed August 30 2013)

This is a very welcoming news indeed. An electricity grid connecting South Asian countries will not only increase reliability, but also will help to harness each SAARC nation’s capacities and resources to address growing energy needs in the region. India, Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka are part of SAARC.  The Indian State-run Power Grid is finalizing the construction of transmission line between India and Nepal for transfer of bulk power.

Other News articles:

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Nepal Energy in the News: August 1-15

Nepal Electricity Authority (NEA) posted loss of Rs 4.56 billion in 2012/13 (Republica, accessed August 15, 2013).

However, loss is half of the previous year, thanks to the tarrif hike last August. In 2011/2012, NEA’s net loss was 8.55 billion. “Presenting the NEA´s financial report at 28th anniversary on Saturday, NEA´s Managing Director Rameshwar Yadav said that the annual loss came down due to an increment in tariff revenue by 22.5 percent. … The NEA has earned Rs 26.2 billion in total and the expense went up by 12.46 percent in the fiscal year as the energy purchase volume increased while the Nepali currency weakened against the dollar. It posted a total expense of Rs 25.07 billion in the year. And the total power purchase expense amounted to Rs 13.49 billion, which accounted for 53.82 percent of the total operating expense.  “

11 hydro projects stalled as Nepal Electricity Authority (NEA) refuses to do Power Purchasing Agreement (PPA). (Karobar daily news, accessed August 5, 2013)

NEA has not signed PPA with these projects based on its assumption that surplus electricity will be wasted during the monsoon season six years down the line and it will face annual losses of billions. Six projects are Kali Gandaki Kovang (180 MW), Budi Gandaki A (90 MW), Budi Gandaki B (207 MW), six projects under Super Six (210 MW) Projects, and Upper Trishuli 1 (216 MW).

Other News articles:

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Energy Efficiency as an Energy Resource for Nepal

Guest Author: Achyut Shrestha

In the long run, Nepal may overcome the present power crisis with the help of largely untapped natural resources – hydro power potential up to 83 GWh (Shrestha, 1968) and significant potential from wind and solar energy (Upreti et al). However, it is imperative that we also try to seek immediate solutions to mitigate the energy shortage. Energy efficiency (EE) provides an opportunity to reduce power shortages in the short run.

What is Energy Efficiency?

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Alaska’s rural electricity system and lessons for Nepal

Last week, I got an opportunity to learn about Alaska Village Electric Cooperative (AVEC) during the annual conference of US Association of Energy Economics (USAEE) in Anchorage, Alaska. AVEC is a non-profit electric utility that provides stable electricity to 55 Alaskan villages with the help of distributed generation and local grid connection. There are similarities, in terms of geographic variations and dispersed population, between Alaskan villages and Nepal’s rural parts. AVEC has been successful in providing electricity to its villages, whereas most of the rural parts on Nepal are still deprived of electricity. In this situation, is there anything that Nepal can learn from AVEC? This post highlights the works of AVEC and the ways that Nepal can learn from them.
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Nepal’s Electricity Crisis: Are there any short-term solutions?

Nepal is facing sever power crisis at the moment. Even with the proper planning, it takes several years to develop necessary infrastructures for power generation and transmission. With Nepal’s never ending political turmoil, Nepal Government’s plans of reducing power shortages may take few more years than anticipated. Let’s explore some short-term plans of reducing power shortage. Besides increasing generation, are there any other ways to reduce power shortages in Nepal?

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Nepal Electricity Authority’s annual electricity purchases and sales

This post will focus on Nepal Electricity Authority’s (NEA) annual electricity purchases and sales. NEA is government regulated and sole electric utility company of Nepal. It is responsible for distribution and transmission of grid connected electricity. Although private sectors are allowed to participate in the generation sector, NEA is the major electricity producer of Nepal.

The annual total purchase amount is the sum of the electricity bought from different producers. The total electricity sale is the sum of metered electricity of all customer types. In other words, it is the source of NEA’s revenue and uses it to pay for its purchases and transmission and distribution costs.

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Nepal’s Generation Sector: Is it too hydropower-centric?

In my last post, I discussed the scope and opportunities in Nepal’s hydropower industry. I will talk about Nepal’s electricity sector in the next few blogs. Electricity sector can be divided into three main areas – generation, transmission, and distribution. This post will primarily focus on the generation part.

As mentioned in my previous blog post, the total installed capacity of Nepal’s power system  in 2010 is 700 MW; and most of it comes from hydropower. Nepal’s government allowed private investment in the generation sector through Hydropower Policy of 2005. Independent Power Producers (IPP) have actively participated in hydropower development since 2005. In 2010, the total share of IPPs was 166.81 MW, about a quarter of the total installed capacity. There are numerous projects that have received license for constructing new plants. Department of Electricity and Development[1] has already issued license for 60 such projects with the cumulative capacity of around 1400 MW! That’s more than Nepal’s installed capacity. Moreover, there are many projects that have obtained licenses for feasibility study.[2] Should we be focusing just on hydropower for electricity?
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