Kathmandu: Nepal Electricity Authority’s (NEA) new power purchase agreements (PPAs) signed in fiscal year 2025/26 show a sharp decline in the share of hydropower projects, while solar power has made a major leap. Of the 54 projects with which the authority signed PPAs during the year, only five were hydropower projects, while 49 were solar projects.
According to the report of the NEA executive director, the total capacity of these 54 projects is 703.6 MW. Hydropower accounts for just 28.6 MW of this total, while solar power accounts for 675 MW.
In other words, solar power accounts for around 96 percent of the total capacity covered by the new PPAs. Solar also represents more than 90 percent of the projects by number.
The figures point to an important shift in Nepal’s electricity market in recent years: as new generation capacity is added, solar energy is gradually beginning to challenge hydropower’s long-standing dominance.
Five Hydropower Projects, 49 Solar Projects in a Single Year
Of the 54 projects for which the NEA signed PPAs in fiscal year 2025/26, the five hydropower projects have a combined capacity of only 28.6 MW. In comparison, the 49 solar projects have a combined capacity of 675 MW.
In terms of newly contracted capacity in a single year, solar power is therefore nearly 24 times larger than hydropower.
This is more than just a set of statistics. It signals a shift in both investors’ priorities in the energy sector and the NEA’s power procurement structure.
Hydropower projects require longer development periods, large upfront investments, transmission infrastructure, environmental and forestry clearances, and other supporting infrastructure. Compared with solar projects, hydropower development is also more complex and time-consuming, which may help explain the rapid expansion of solar in new PPAs.
But there is another equally important side to the story.
Adding 675 MW of Solar Power Raises Market Management Challenges
The production pattern of solar power is different from that of hydropower. Solar plants generate electricity only during daylight hours, while electricity demand varies throughout the day. In Nepal, solar generation is unavailable at night.
Therefore, the 675 MW of solar PPAs cannot simply be understood as “675 MW of new electricity capacity added.” They also raise questions about system operation, transmission capacity, daytime electricity demand, and the management of surplus energy.
This is particularly important because solar generation can be high during the monsoon, when hydropower production is also at its peak. When a large amount of electricity is available in the system at the same time, infrastructure is needed to consume it in the domestic market, export it elsewhere, or store it when necessary.
As a result, the expansion of solar power will also increase the importance of energy storage, transmission expansion, cross-border electricity trade, and time-based electricity market management.
Is Solar Starting to Replace Hydropower?
Looking at Nepal’s long history of energy development, hydropower has traditionally been at the center of electricity generation. But the latest PPA figures raise a new question: Will hydropower remain the sole mainstay of Nepal’s electricity generation expansion, or will solar emerge as an equally important source alongside it?
The NEA already has a substantial hydropower PPA obligation. According to the authority, the total number of PPAs signed with private-sector developers has reached 545, covering a combined contracted capacity of 12,135 MW.
Therefore, the 54 new PPAs should not be viewed as an isolated development but rather as part of a broader shift in Nepal’s overall PPA structure.
On the one hand, PPAs have already been signed for thousands of megawatts of hydropower projects. On the other, solar power is now taking a dominant share of new PPAs. This indicates that the NEA’s power procurement structure may gradually become less dependent solely on hydropower in the coming years.
Rapid Solar Expansion Raises Another Question
The expansion of solar power could benefit Nepal’s energy system because of its relatively lower costs, shorter construction periods, and easier project development. In particular, solar generation can support the system during daylight hours in the dry season, when hydropower output declines.
However, another challenge could emerge if the timing of solar and hydropower generation is not managed properly.
Given Nepal’s limited reservoir-based hydropower capacity, how can the system maintain a balance between the higher electricity generation from solar during the day and the electricity required at night and at other times?
Reservoir-based hydropower, pumped storage, battery storage, transmission expansion, and electricity trade with India could therefore become increasingly important.
The PPA figures for fiscal year 2025/26 send a clear signal: solar energy is no longer merely a supplementary source in the next phase of Nepal’s electricity generation expansion.
The signing of PPAs for just 28.6 MW across five hydropower projects and 675 MW across 49 solar projects in a single year is strong evidence of this shift.
The challenge now is not simply how much electricity to generate, but how to balance, reliably manage, and economically utilize electricity produced from different types of sources within a single power system.
Jalasarokar
