Power Purchase Agreements and the Offtake Constraint

A developer arriving in Nepal is usually told that the resource is the opportunity and the permitting is the obstacle. Both statements are out of date. Sites are licensed in quantity, the survey and generation process is slow but tractable, and construction capability exists domestically. What most projects cannot find is a buyer.

Who buys the power

Almost all privately generated electricity in Nepal is sold to the Nepal Electricity Authority under a bilateral power purchase agreement. The Authority is a state-owned, vertically integrated utility that also owns the transmission network, dispatches the system and generates in its own right. There is no organised wholesale market and no capacity auction. For all practical purposes there is no second buyer either, though the open access framework issued in 2026 is meant to create one.

The Electricity Regulatory Commission regulates the field under its own 2017 Act. Its Electricity Purchase and Sale, and Conditions to be Complied with by Licensees, Regulations 2076 govern purchase and sale arrangements and licensee conduct. In 2082 it added a dedicated directive for reservoir-based generation. On 14 August 2026 it issued balancing and settlement directives together with a grievance mechanism for open access customers. The regulatory scaffolding is going up quickly. The commercial bottleneck underneath it has not moved.

The published price

The Authority publishes a PPA rate sheet. Its effective date is 2074/01/14 — 27 April 2017.

Project type	Wet season	Dry season	Minimum dry-season energy
Run-of-river, up to 100 MW	NPR 4.80/kWh	NPR 8.40/kWh	30%
Peaking run-of-river, up to 100 MW	NPR 4.80/kWh	NPR 8.50–10.55/kWh by peaking hours; NPR 8.40 off-peak	30%
Storage	NPR 7.10/kWh	NPR 12.40/kWh	35%

Peaking rates rise with commitment: NPR 8.50 for one to two hours of peaking, NPR 8.80 for two to three, NPR 9.40 for three to four and NPR 10.55 for four to six. Escalation is 3% simple for eight years, applied to run-of-river and peaking run-of-river below 100 MW and to all storage projects.

Three features of that table deserve more attention than they get.

The first is that this is a nominal rupee price fixed nine years ago. Simple escalation for eight years on a fixed base, against nine years of construction cost inflation and a project life of thirty years or more, barely counts as indexation. A project signed in 2018 and the same project signed today have materially different economics, even though the tariff on the page is identical.

The second is that the sheet prices seasonality rather than firmness. The dry-season premium and the minimum dry-season energy conditions carry the whole design intent, because Nepal’s problem is a winter deficit and a monsoon surplus. Availability goes unpaid. A run-of-river plant with no storage carries hydrological variability and, increasingly, curtailment.

The third is that there is no published contract term. Tenor, termination, change-in-law, force majeure, deemed generation and dispute resolution all live in the agreement rather than the rate sheet, and the standard form is not published. A public price and a private contract is where most of the negotiating value sits.

The queue

As at July 2026, 281 projects totalling 16,425.77 MW held licences with no power purchase agreement. Set against installed capacity of roughly 4,000 MW and national peak demand around 2,600 MW, that is no ordinary backlog. It is a licensed pipeline four times larger than the system it would feed.

The agreements that do exist:

Type	Agreements	Capacity
Run-of-river	404	6,713 MW
Peaking run-of-river	51	4,187 MW
Storage	1	140 MW
Solar	88	1,055 MW

One storage agreement. That single number explains the shape of the Nepali system better than any policy document. The country has contracted almost entirely for energy that arrives when the rivers are high, and has almost no contracted ability to carry energy from the monsoon into the winter. It is also why the Commission issued a separate reservoir purchase directive. The general rate sheet was not producing storage projects.

Take-or-pay and take-and-pay

Risk allocation has reversed twice in two budget cycles. The FY 2025/26 budget moved new run-of-river agreements toward take-and-pay, under which the Authority pays only for energy it actually takes. That transfers hydrological and curtailment risk alike to the developer. The FY 2026/27 budget moved back to take-or-pay and promised immediate agreements for projects under 10 MW.

Neither position has been given effect by legislation or by a published amendment to the rate sheet. For a lender the distinction is no drafting nuance. Take-and-pay on a run-of-river asset, in a system already spilling roughly 1,000 MW in the wet season for want of evacuation capacity, converts a contracted revenue stream into a merchant one. The developer gets no control over the dispatch decision that drives it. Debt sized against take-or-pay cash flows does not survive that conversion.

The August 2026 balancing and settlement directives matter for the same reason. Deviation settlement rules decide who pays when scheduled and delivered energy diverge. Any project negotiating offtake now is negotiating against rules two weeks old.

What a Nepali PPA lacks

Several protections a sponsor would expect on a typical emerging-market independent power project are absent here, or could not be verified.

The tariff is in Nepali rupees with no foreign currency indexation. A project financed in dollars or Indian rupees carries the mismatch on its own balance sheet, and Nepal Rastra Bank’s foreign loan rules restrict the security that might otherwise compensate a lender for it.

There is no sovereign guarantee of the offtaker as a standard feature. The counterparty is the Authority.

There is no published, rule-based queue. A project does not know its position, the criteria, or the date on which agreements resume.

And the offtaker is also the system operator, the network owner and a competing generator. Every curtailment, connection and settlement decision is taken inside the buyer’s own organisation. The Commission’s open access and balancing rules are the first serious attempt to constrain that, and they are new.

Two routes around the queue

Open access. The Commission’s Open Access Directives 2082 require non-discriminatory access to transmission and distribution, with eligibility for generators of 5 MW and above and consumers of 5 MW and above at 33 kV or higher. Administered neutrally, that lets a generator contract directly with a large industrial consumer and bypass the Authority as buyer. See transmission, grid connection and open access.

Export. India’s Central Electricity Authority has approved a growing list of Nepali projects for sale into the Indian day-ahead and real-time markets and bilaterally to Haryana and Bihar. Electricity sales to India and Bangladesh earned NPR 29.32 billion in the year to mid-July 2026. Export is constrained by cross-border transfer capability and by Indian approval rules rather than by Nepali licensing. See cross-border power trade, licence expiry and project exit.

Both routes are real and both are early. Neither yet supports a bankable long-term offtake for a greenfield project without the Authority somewhere in the structure.

Questions before committing capital

Whether the specific project sits inside or outside the suspension, and on what evidence. Whether the agreement offered is take-or-pay or take-and-pay, in writing. How curtailment and deemed generation are treated, given that spill is already happening. What the connection date depends on, and whether the evacuation line is funded. And how eight years of escalation interacts with a thirty-year licence term.

The last is the question a Nepali PPA answers least well. A licence of thirty or thirty-five years, a tariff that escalates for eight, and an asset that transfers to the Government at expiry: the revenue profile flattens in real terms for two decades before handover. That is the deal on offer, and it is more often discovered in year nine than priced at signature.

Sources

1. PPA Tariff Rates

   Nepal Electricity Authority · Effective 2074/01/14 (27 April 2017) · Tier 2 — Official publication

   Supports: Run-of-river rates of NPR 4.80 wet and NPR 8.40 dry up to 100 MW; peaking run-of-river dry rates by peaking hours of NPR 8.50, 8.80, 9.40 and 10.55 with NPR 8.40 off-peak; storage rates of NPR 12.40 dry and NPR 7.10 wet; 3% simple escalation for eight years; minimum dry-season energy of 30% and 35%.

   Accessed 26 August 2026

2. Electricity Purchase and Sale, and Conditions to be Complied with by Licensees, Regulations 2076

   Electricity Regulatory Commission · 2076 (2019); posted to the Commission's website 15 February 2026 · Tier 1 — Primary legal instrument

   Supports: That purchase and sale of electricity and the conditions binding licensees are regulated by the Commission under subordinate legislation, not left to the utility's contracting discretion alone.

   Accessed 26 August 2026

3. Directive on purchase and sale of electricity from reservoir-based generating stations, 2082

   Electricity Regulatory Commission · Posted to the Commission's website 15 February 2026 · Tier 1 — Primary legal instrument

   Supports: That the Commission has issued a dedicated purchase and sale instrument for storage projects, separate from the Authority's general rate sheet.

   Accessed 26 August 2026

4. Balancing and Settlement Directives, 2083

   Electricity Regulatory Commission · Posted 14 August 2026 · Tier 1 — Primary legal instrument

   Supports: That settlement rules for deviations between scheduled and delivered energy were issued in August 2026, and are therefore new to any project negotiating offtake now.

   Accessed 26 August 2026

5. India's rising power demand offers Nepal a market — but not forever

   The Kathmandu Post · 23 August 2026 · Tier 6 — Professional or news source

   Supports: That approximately 281 projects totalling around 16,500 MW await power purchase agreement approval; NPR 1.24 trillion committed across 347 operating or under-construction projects; roughly 1,000 MW spilled for want of transmission; NPR 29.32 billion of export earnings in the year to mid-July 2026.

   Accessed 26 August 2026

6. Budget for FY 2026/27 — energy provisions

   Nepalnews (reporting the Government of Nepal budget statement) · 2026 · Tier 6 — Professional or news source

   Supports: That new power purchase agreements were announced as take-or-pay, and that the Authority is to be restructured into three companies.

   Accessed 26 August 2026