Energy entrepreneurs are stepping up pressure on the state-owned Nepal Electricity Authority (NEA) to review pricing mechanisms, arguing that while the country's constitution can be amended, the state’s electricity purchase rates have remained frozen for nearly a decade despite skyrocketing inflation and construction costs.
According to data from independent power producers, the capital required to build hydropower infrastructure has nearly doubled over the last ten years. A decade ago, projects like the Chilime Hydropower Project were completed at an average cost of Rs 140 million to Rs 150 million per megawatt (MW).
Today, due to a 300% surge in the cost of construction materials like cement and steel rods, alongside rising fuel and labor expenses, the average cost has climbed to Rs 200 million to Rs 250 million per MW. In geologically challenging terrains with limited road access, development costs are reportedly eclipsing Rs 300 million per MW.
Despite these macroeconomic shifts—compounded by bank interest rate volatility and a strengthening US Dollar that drives up the cost of imported electro-mechanical equipment—the NEA’s baseline PPA rates have remained static at Rs 8.40 per unit during the winter and Rs 4.80 per unit in the rainy season.
The grid’s reliance on private capital is higher than ever. Of the roughly 4,200 MW currently connected to the national grid, the private sector contributes more than 3,300 MW—representing roughly 80% of the non-governmental supply.
While the NEA has signed PPAs for over 10,000 MW to date, a massive backlog is forming. Approximately 4,000 MW of projects are under construction, 5,000 MW are stalled awaiting financial closure, and an estimated 12,000 MW pipeline is lined up waiting for the NEA to open new PPA rounds.
The Independent Power Producers' Association, Nepal (IPPAN) warns that without a timely adjustment or a shift toward a "cost-plus" model—which calculates rates based on actual project expenditures plus a fixed return—many operating projects run the risk of turning into financially unviable, "sick" components of the banking sector's portfolio.
NEA officials maintain that adjusting the PPA rate upward carries severe political and financial risks. Higher purchase rates would inevitably force an increase in consumer electricity tariffs, a move facing steep social and political resistance.
Furthermore, under standard "take-or-pay" provisions, the NEA bears the financial burden of buying all generated power, risking heavy losses if surplus energy cannot be exported during the wet season.
Faced with this deadlock, government officials confirmed that discussions are underway to provide alternative relief. Rather than direct PPA rate hikes, the Ministry of Energy is evaluating options to extend the standard 35-year generation license periods or introduce targeted tax and customs concessions on imported machinery.
However, energy analysts warn that if Nepal intends to realize its 10-year roadmap of generating 30,000 MW, the regulatory framework must transition away from stagnant, fixed pricing toward a scientific, inflation-indexed model that restores investor confidence.
