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The Independent Power Producers’ Association, Nepal (IPPAN) has stated that the budget for fiscal year 2026/27, has created a positive foundation for the development of the energy sector, expansion of private sector participation, and structural reforms, while urging the government to focus on its effective implementation.

According to IPPAN’s assessment of the budget, a total of 1,040 MW of electricity - 670 MW from hydropower projects and 370 MW from solar energy - will be added to the national grid in the coming fiscal year. As a result, Nepal’s total installed electricity capacity is expected to reach 5,535 MW.

The association noted that the budget has identified energy, agriculture, forestry, industry, tourism, information technology, and human capital as key drivers of economic prosperity over the next decade, laying the groundwork for a new phase of structural transformation in the economy.

IPPAN welcomed several provisions in the budget, including prioritizing transmission line expansion, reopening Power Purchase Agreements (PPAs) for hydropower projects below 10 MW, creating legal provisions for private sector participation in electricity trade and transmission infrastructure, and introducing a “sunset law” for development projects. The association also endorsed the government’s vision of increasing domestic electricity consumption and exporting electricity as a value-added product rather than merely as a raw commodity.

However, IPPAN expressed concerns over the lack of clarity and practicality in some of the announced measures. While it viewed the proposed restructuring of the Nepal Electricity Authority into three separate entities - generation, transmission, and distribution/trading - as a positive step, it stressed the need to ensure effective coordination among these institutions in the future.

The association also described as unclear the budget’s proposal to cancel licenses of projects that have secured PPAs but have not yet started construction and to sign new PPAs under a “take-or-pay” model. IPPAN argued that canceling projects in which substantial investments have already been made without compensation would be unfair and suggested setting clear deadlines and alternative management mechanisms instead.

Similarly, it warned that the proposed system of determining electricity purchase rates through competitive bidding during the dry season may not be practical and could negatively affect project returns.

IPPAN stated that allowing the private sector to engage in international electricity trade and to build transmission lines for power trading through wheeling charges represents a historic opportunity for Nepal’s energy sector. It urged the government to immediately introduce the necessary policies and legal frameworks for implementation.

The association welcomed the policy of allowing the public to invest in reservoir-based hydropower projects from the initial stages through share offerings. However, given the high capital costs of such projects, it stressed the need for government support through Viability Gap Funding (VGF) or subsidies.

IPPAN also praised the announcement of green hydrogen production initiatives and the establishment of a 100 MW Battery Energy Storage System (BESS). However, it pointed out that the legal and regulatory frameworks required for these projects are still lacking and called for immediate action.

The association described the planned amendments to forestry and environmental laws, the development of a one-door service system, and efforts to shorten approval procedures as highly positive for energy and infrastructure development. It noted that lengthy forestry and environmental approval processes have long hindered infrastructure projects and urged the government to implement these reforms without delay.

Likewise, IPPAN expressed confidence that clean energy bonds, diaspora bonds, alternative financing instruments, and long-term lending at stable interest rates would facilitate greater investment and improve financial management in the energy sector. However, it urged the government to reconsider its proposal to merge the Hydropower Investment and Development Company Limited with other financial institutions, arguing that it should instead be developed as a specialized institution dedicated to energy-sector investment.

The association also welcomed government plans to promote domestic electricity consumption through initiatives such as a sovereign AI computing center, a green urea fertilizer plant, and energy-based industries. It believes that generating higher value-added services domestically and exporting them will support the long-term growth of Nepal’s energy sector.

Overall, IPPAN concluded that the budget and policy measures have set the energy sector on the right course, but emphasized that their success will ultimately depend on implementation. The association noted that the private sector is prepared to invest in projects with a combined capacity of around 30,000 MW and stressed the need for an investment-friendly environment, policy stability, and administrative facilitation to unlock that potential.

Nepalpurbadhar