Kathmandu – The government has moved forward with a process to open power trading licenses to the private sector.
Minister Anil Sinha, who also holds responsibility for the Ministry of Energy, Water Resources and Irrigation, has initiated the process to make arrangements that would allow the private sector to directly sell electricity they generate in both domestic and international markets.
Previously, although there were repeated attempts to grant permission to the private sector for the buying and selling of electricity, the process could not move forward due to the lack of clear policy and legal provisions. However, there is now a growing view that electricity trading can be permitted even under existing laws, along with increasing calls to involve the private sector not only in production but also in electricity trade.
“If the government moves the process forward now, it will also make things easier for the new government that will be formed after the House of Representatives elections scheduled for March 13. If the private sector is granted electricity trading licenses, the licensed companies will be able to enter into power purchase agreements (PPAs) on their own.
Many projects have been stalled due to the lack of Power Purchase Agreements (PPAs), as the Nepal Electricity Authority has been unable to buy all the electricity produced. Therefore, if the private sector is allowed to sell electricity directly, it is expected that large hydropower projects could be developed by the private sector itself, and the electricity produced could be exported not only within Nepal but also to neighboring countries such as India and Bangladesh.
The Independent Power Producers’ Association Nepal (IPPAN) has been continuously demanding permission for direct electricity sales, stating that although Nepal is earning foreign currency from electricity exports, domestic industries are not receiving electricity according to their demand, and in some cases, the electricity produced is going to waste. Currently, about a dozen companies are waiting for licenses to buy and sell electricity.
Nepal’s electricity generation potential is estimated to be around 200,000 MW. However, the current production capacity is limited to about 3,500 MW. Projects with a capacity of 4,452 MW are under construction, while projects with a capacity of 9,632.8 MW are in the pre-construction preparation stage.
Under the Department of Electricity Development, a total of 637 projects from the private sector with a capacity of 31,391 MW have been identified. The government itself has promoted 223 projects totaling 15,234 MW, while under the Investment Board, 7 projects with 4,762 MW capacity have been identified. Additionally, 3 large multipurpose reservoir projects have a combined capacity of 19,780 MW. Altogether, 880 projects have been identified, with a total capacity of 71,167 MW.
The government has set a target to generate 30,000 MW of electricity over the next 10 years. To achieve this goal, it is seen as essential to grant the private sector licenses for electricity trading. It is estimated that producing 30,000 MW of electricity in 10 years will require about NRs 6 trillion, while constructing transmission lines will cost NRs 762 billion and the distribution system NRs 412 billion. Thus, the total estimated investment required is approximately NRs 7.178 trillion.
As per the government, domestic electricity consumption is expected to reach 10,000 MW in the coming decade, and electricity exports could generate about NRs 675 billion in foreign currency. This is estimated to potentially reduce the trade deficit, which reached around NRs 1.5 trillion in FY 2022/23, by approximately 60 percent.
Meanwhile, last month the government ended the obligation for electricity producers to sign Power Purchase Agreements (PPAs) with the Nepal Electricity Authority, following demands from the private sector. With the implementation of the “Open Access in Electricity Transmission and Distribution Directive, 2025” by the Electricity Regulatory Commission, a policy framework has been established that allows producers to directly seek customers and sell electricity.
According to the directive, any electricity producer who pays the prescribed fee will gain non-discriminatory access to the existing transmission and distribution infrastructure. The Electricity Regulatory Commission has stated that this will pave the way for selling electricity according to demand in both domestic and international markets.
With the implementation of the directive, it is expected that the transmission line capacity will be utilized to the maximum, private sector participation will increase, and a predictable and clear regulatory environment for electricity trading will be established. According to the Commission, this arrangement is a significant milestone for Nepal’s electricity sector
With the implementation of open access in the transmission system, which until now was entirely controlled by the Nepal Electricity Authority (NEA), the private sector now has a pathway to enter into the construction and operation of transmission and distribution infrastructure. The Commission has clarified that open access users will have to pay up to nine types of fees, including transmission charges, wheeling charges, and cross-subsidy charges.
Open access will connect electricity producers directly with potential markets, removing the need for developers to wait for PPAs from the NEA. This is expected to make the electricity generation, transmission, and distribution sectors more competitive, transparent, and efficient.
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