- NewBiz Report

With the entry of the private sector, power generation accelerated relatively quickly, and now the private sector generates significantly more power than the government.

In early 2023, Prime Minister Pushpa Kamal Dahal inaugurated the 86 MW capacity Solu Khola (Dudhkoshi) Hydroelectric Project. Developed by Sahas Urja Ltd, this is the largest hydropower project developed in the country by the private sector so far. Sahas Urja, led by Chairman Him Pathak, has transitioned from investing in smaller projects like the 5MW Upper Hugdi Khola to developing the 86MW Solu Khola by mobilising domestic resources. Following this achievement, Sahas Urja acquired the 341 MW Budhi Gandaki Hydroelectric Project from Times Energy in January 2024 for Rs 2 billion.

Another pioneering entrepreneur, Pushpa Jyoti Dhungana of Super Madi Hydropower, ventured into the industry in the mid-2000s and developed the Pati khola project having capacity of 1MW in 2008. "When we entered the business, generating resources was very challenging. We also faced a shortage of technical expertise," Dhungana recalled. Sixteen years down the lane, his company is now preparing to develop the 250MW Upper Tamor Hydropower Project. The project is fully funded by local investors and designed by the local firm Sanima Hydro and Engineering, he added. This recent focus on larger projects over 100 MW by independent power producers (IPPs) like Sahas Urja and Super Madi represents a significant milestone for Nepal's hydropower sector.

Increasing Private Sector Participation

The Khimti Hydropower Project (60 MW), which began commercial operation on July 11, 2000, marked a watershed moment in the history of hydropower development in Nepal. It was the first project undertaken by the private sector since hydropower development began in Nepal in 1911 with the Pharping Hydropower Project (500 KW) back in 1911. It gradually paved the way for private-sector investment in the power sector. Following the success of Khimti, Bhotekoshi Hydropower was developed by the private sector. These two projects marked the pioneering ventures undertaken by the private sector with foreign investment in the country. In the early 2000s, the Nepal Electricity Authority adopted a policy to purchase up to 50 MW from projects developed by independent power producers, with capacities ranging from 1MW to 10MW. A beautiful aspect of private sector involvement in the power sector is that the initial investment in the sector was driven by entrepreneurs who do not belong to the big business groups of the country.

"The entrepreneurs with medium-scale wealth were the first to initiate the development of hydropower projects in Nepal," said Ashish Garg, vice-president of the Independent Power Producers’ Association of Nepal (IPPAN). "They deserve credit for venturing into a business that is inherently risky, with a long gestation period for recovering investments and being capital intensive."

According to Garg, there are 25-30 entrepreneurs in the country who are not extremely wealthy but are propelling Nepal's hydropower sector forward by creating value in their projects and attracting public investment to undertake larger endeavours. While big businesses are also entering hydropower development, they have not fully embraced the sector with their complete force, he added.

"In the early years, the Nepali private sector was primarily involved in developing projects up to 10 MW," said Garg. "That is why the NEA also adopted the policy of purchasing power from independent power developers undertaking projects with capacities ranging from 1 MW to 10 MW."

According to the NEA, excluding its subsidiary, the largest hydropower project built by the domestic private sector until fiscal year 2009/10 was the 7.5 MW Indrawati III Hydropower Project. Butwal Power Company’s Jhimruk Khola (12 MW) was constructed when it was under government control. The company was privatised in the early 2000s. Until fiscal year 2009/10, there were only 22 hydropower projects promoted by the private sector, including the subsidiaries of the NEA, in the country. Together, they contributed 166.80 MW to the national grid.

The involvement of the private sector, especially local entrepreneurs, grew significantly in the power sector over time. By fiscal year 2019/20, Nepal's installed capacity of power projects reached 1332.85 MW, with the private sector contributing 696.16 MW. This accounts for approximately half of the total generation capacity covered by the private sector, as reported in the Annual Report 2019/20 of the NEA. As of the first half of the current fiscal year 2023/24, Nepal's total installed capacity reached 2828.99MW, with the private sector contributing 1621.38MW, according to the NEA. Total installed capacity of power projects in Nepal has reached 3,000 MW now, according to IPPAN. "The private sector contributes 1,800 MW which accounts for 60% of the total capacity," said Garg. "It is anticipated that the private sector's share will increase to 80 percent by 2030."

Several projects with a combined capacity of 3,000 MW are currently under construction with private-sector investment, according to IPPAN. Additionally, projects with a total capacity of 3,000 MW are set to enter the construction phase after signing power purchase agreements and securing financial resources, said Garg.

The private sector contributes 1,800 MW which accounts for 60% of the total capacity. It is anticipated that the private sector's share will increase to 80% by 2030.

Since the entry of the private sector in hydropower development in the early 2000s, there has been a significant surge in power generation in the country. Until 2000, when there was no presence of private players, the government could develop only 361.5MW of power in nearly 90 years. With the entry of the private sector, power generation accelerated relatively quickly, and now the private sector generates significantly more power than the government. With the increased participation of the domestic private sector in power generation, their capacity to undertake larger projects has also expanded. "The private sector initially began developing projects of just over 1 MW," noted Ganesh Karki, president of IPPAN. "Now, the domestic private sector is capable of developing projects with capacity up to 500 MW."

The provision in the new electricity bill which allows the government to grant licences without competition to joint venture entities between Nepal and foreign government entities for developing hydropower projects over 100 MW has drawn criticism from the private sector. IPPAN has objected to the provision, arguing that foreign investors should not be granted licences to develop projects up to 500 MW without competition. "Nepali private sector itself is capable of developing projects up to 500 MW," said Karki. "If foreign investors are interested in smaller projects, they should also compete like we do."

According to Karki, as the Nepali private sector ventured into developing larger projects, they also began to receive investments from banks as well as the general public. Due to the high number of shareholders, hydropower companies have the opportunity to reinvest in more projects by raising capital from the same investors by issuing rights shares, private sector developers. "Even banks that previously lacked expertise in financing power projects have gained experience and are now increasingly funding larger projects," added Garg.

With the government aiming to develop over 28,500 MW by 2035, both domestic and foreign private sector developers have a significant role to play. The private sector has already contributed close to 2,000 MW to the grid. "With domestic private sector-led projects with a combined capacity of 6,000 MW either under construction or in the phase of starting construction, achieving 10,000 MW by 2035 shouldn't be much difficulty for the domestic private sector," said Garg.