The Government of Nepal is holding firm on its decision to implement a “take-and-pay” model for Power Purchase Agreements (PPAs), despite growing dissatisfaction and warnings from private hydropower developers that the policy could derail future investments.
As per the FY 2025/26 annual budget unveiled on May 29, the new model requires the Nepal Electricity Authority (NEA) to purchase electricity from private producers only when there is actual demand. This marks a shift from the previously favored “take-or-pay” model, under which NEA had to pay for all electricity generated, whether consumed or not.
Private Sector Raises Alarm
Ganesh Karki, President of the Independent Power Producers’ Association Nepal (IPPAN), expressed strong concern, saying the policy discourages future investment as it offers no revenue certainty. Banks and financial institutions, he noted, are reluctant to fund projects without guaranteed returns. As a result, several developers have refused to sign new PPAs under the revised terms.
NEA’s Financial Struggles Behind the Move?
While the government insists that the new provision aims to match electricity supply with actual demand, IPPAN claims the measure is designed to protect NEA, which has reportedly been incurring losses since the departure of former MD Kulman Ghising. During the rainy season, when hydropower output peaks but consumption drops, NEA’s purchase obligations under the “take-or-pay” model become financially burdensome.
Impact on Future Projects
IPPAN estimates that over 350 hydropower projects, with a combined capacity of 17,000 MW, are now in limbo due to the policy shift. Developers have already invested about Rs. 66 billion in feasibility studies and preparatory works, all of which are now at risk.
Government Response
Finance Minister Bishnu Prasad Paudel, however, defended the policy in a recent meeting with IPPAN, asserting that the “take-and-pay” model will not affect energy production by private developers. He did not address concerns about financing or market access, which remain critical for private sector confidence.
No Alternative Buyers
Currently, private producers cannot sell electricity independently, leaving NEA as their sole buyer. This further amplifies the risk under the new policy, as producers have no recourse if NEA refuses to purchase their electricity due to low demand.
Roadmap Contradictions
IPPAN also criticized the government for contradicting its own long-term plans. The “take-and-pay” policy directly undermines:
- The Energy Development Roadmap 2081, which aims to produce 28,500 MW of electricity
- The 16th Five-Year Plan, which targets sustainable energy growth and regional electricity exports
In a public statement, IPPAN warned that the new model could become a major bottleneck in Nepal’s efforts to become a clean energy hub, especially given the lack of domestic demand absorption and the underdeveloped export infrastructure.
Conclusion
The clash between the government and private hydropower developers over the “take-and-pay” model has exposed deeper challenges in Nepal’s energy policy—chief among them being financial risk-sharing, demand forecasting, and market diversification. Unless alternative frameworks or buyers are introduced, Nepal’s ambitious hydropower goals may face serious setbacks.
