The Nepal Electricity Authority has decided to open the Power Purchase Agreement (PPA) for hydropower projects with capacities of up to 10 megawatts.

The Authority’s board meeting recently decided to sign power purchase agreements (PPAs) for hydropower projects with capacities of up to 10 megawatts that had already completed the “grid connection agreement” by March 25.

According to a source at the Ministry of Energy, the NEA Board has decided to sign power purchase agreements (PPAs) for hydropower projects up to 10 megawatts under the “take-or-pay” provision.

The Authority has decided to sign PPAs under the ‘take-or-pay’ provision for run-of-river (ROR) hydropower projects up to 10 megawatts and for peaking run-of-river (PROR) hydropower projects.

Although it is said that former Finance Minister Bishnu Prasad Paudel amended the ‘take-and-pay’ policy through Parliament, the same provision still remains in the Red Book.

“Although, as per the budget provision, the PPA should have been concluded under the take-and-pay policy, for the time being the NEA Board has decided to proceed with PPAs under the take-or-pay modality,” the source said. “It has been sent to the Cabinet for approval. Once it is approved, the PPAs will commence.”

Similarly, the Authority is also going to remove the PPA quota in order to encourage small investors to participate in the construction of hydropower projects.

According to the Authority, the quota system for hydropower projects up to 10 megawatts has been scrapped.

The top priority of Energy Minister Kulman Ghising and NEA’s Chief Managing Director Manoj Silwal is to ensure the maximum utilization of local natural resources and to encourage domestic small investors.

Based on the priorities of the Minister and the Managing Director, the ministry has adopted the policy of abolishing the quota system in order to secure the investments of small investors in hydropower, the source said.

According to the decision of the NEA Board, the Authority will now sign PPAs for hydropower projects up to 10 megawatts that submit their applications after completing the necessary procedures. The Authority will enter into PPAs with the promoting companies of these projects at the currently prevailing rates of NPR 8.40 per unit for the dry season (December 2 2025– may 29 2026) and NPR 4.80 per unit for the monsoon season (May 30 2026 – December 1 2026).

PPAs for projects above 10 MW still uncertain

There is still a debate on whether the Authority will adopt the ‘take-or-pay’ or ‘take-and-pay’ policy for hydropower projects above 10 megawatts.

The Authority has not yet been able to make a decision on opening power purchase agreements for run-of-river hydropower projects. Shyam Kishor Yadav, a member of the NEA Board, stated that no concrete decision has been made so far regarding PPAs for projects above 10 megawatts.

According to Yadav, although there have been discussions about opening PPAs for run-of-river projects up to 10 megawatts, no decision has been finalized. While the budget provides for a ‘take-and-pay’ policy, private promoters have demanded that PPAs be conducted under the ‘take-or-pay’ policy.

Yadav said, “The budget initially mentioned the take-and-pay policy. It has not been amended to become take-or-pay. Until the old provision is corrected, it is difficult to make a new decision.”

There is no consensus within the NEA Board on opening PPAs and their modality. The Energy Minister and the Authority’s Managing Director are in favor of opening PPAs to promote the energy sector. However, due to the lack of policy clarity, the decision-making process has not been able to move forward.

Although hydropower promoters have long been demanding the opening of stalled PPAs, the Authority has not been able to find a solution between the risks of ‘take-or-pay’ and the legal obligations of ‘take-and-pay’.

The Authority had asked energy producers in April/May to come forward for signing PPAs within 30 days, but for various reasons, the PPAs have not been finalized.

The Authority had called for PPAs for 38 run-of-river (ROR) projects and 16 peaking run-of-river (PROR) projects. In the current fiscal year’s budget, brought by the previous government on May 29, the ‘take-or-pay’ policy was removed and replaced with the ‘take-and-pay’ policy.

Point 227 of the current fiscal year’s budget statement stated: “Substations and transmission lines will be constructed in line with the completion schedule of hydropower projects. A policy will be adopted to sign power purchase agreements that maintain a balance between electricity production and consumption. Power purchase agreements for run-of-river projects will be conducted according to the take-and-pay concept.”

After a long dispute and with the government itself on the verge of collapse, then Finance Minister Paudel had clarified the provision further to get the budget passed. He stated that the take-and-pay arrangement aimed to ensure that produced electricity would not go wasted, to reduce the investment risk of banking, to prioritize investment in reservoir and peaking reservoir projects, to organize the government’s responsibility to meet electricity demand in the dry season, and to create obligations only to the extent that they could be financially sustained.

However, although the policy was amended with explanations, it has not yet been updated in the Red Book. Pointing to this policy, the previous government was unable to finalize PPAs. Even now, for the same reason, the power purchase agreements (PPAs) remain stalled.

Since then, no process has been initiated for PPAs. Energy-producing businesses are demanding that the PPAs be opened immediately.

With PPAs in place, the private sector is preparing to construct 84 hydropower projects totaling more than 2,000 megawatts. In addition, PPAs have not yet been finalized for over 240 hydropower projects with a total capacity of 11,000 megawatts.

There is still uncertainty for both energy promoters and the Authority, as it is not clear whether projects with a total capacity of 5,000 megawatts will be contracted under the old ‘take-or-pay’ policy or under a new policy.

Energy promoters, including the Independent Power Producers’ Association Nepal (IPPAN), have argued that PPAs cannot be concluded under the ‘take-and-pay’ policy. They claim that under the government’s ‘take-and-pay’ policy, banks and financial institutions will not invest in such risky projects.

Ratopati