Private Power Boom

Nepal’s hydropower story is often told in megawatts, river basins and transmission corridors. But
the more revealing measure is capital. A new report from the Independent Power Producers' Association Nepal (IPPAN) shows that the private sector is now the main driver of the country’s hydropower development, with Rs 1,310 billion already committed to 923 privately promoted projects at various stages of development.

The scale of investment has reshaped hydropower from a pure infrastructure push into a major exposure for the country’s financial system. It has also turned the sector into a key destination for small investors, as public offerings draw mass retail participation.

IPPAN President Ganesh Karki said the private sector has made a significant contribution to 
hydropower development in Nepal. Without private investment, he said, Nepal would still be facing chronic power outages.

A closer look at the IPPAN report reveals  a two-speed pipeline. A relatively small group of operational and under-construction projects have absorbed most of the capital, while a much larger group of early-stage projects dominate planned capacity figures. This explains why banks are deeply  exposed in some segments and largely absent in others, and why the capital market has become both a funding channel  and a sentiment amplifier. Of the 923 private-sector projects, 347 are either operational or under  construction. Together, they account for 7,251  MW and have absorbed about Rs 1,243.99 billion in investment.

The remaining  576 projects—currently in survey, generation licensing and application stages represent a much larger planned capacity of 27,535 MW. But they have attracted only Rs 66.62 billion so far. This gap is not a contradiction, but rather reflects the economics of hydropower development.

The Mainstreaming of Hydropower Finance

Bank financing in the hydropower sector has expanded significantly over the years. As of mid-2025, bank lending to the hydropower sector stands at about Rs 447 billion, compared with total bank lending of more than Rs 5,500  billion. In 2009, total bank lending to the hydropower sector stood at mere Rs 2.76 billion. This evolution indicates that hydropower has moved from a niche lending category to a mainstream asset class.

By the end of the last fiscal year, banks had extended Rs 870.79 billion in loans to private projects that are under construction or already in operation. Private-sector equity investment in projects, including those at early stages of development, stands at Rs 439.82 billion. In addition,  foreign loans received in the form of foreign direct investment exceed Rs 54 billion, while institutional investors such as the Citizen Investment Trust and the Employees Provident Fund have provided more than Rs 66 billion in debt financing.

As of February 2025,  total loan exposure of banks and financial institutions to the electricity sector reached 7.40%, up from 0.69% in 2009. In absolute terms, lending to the sector has risen more than 145-fold in 16 years.

Hydropower loans are attractive for banks because they are long-term, asset-backed, and aligned 
with national  development priorities. However, scale changes the risk profile significantly. Concentrated exposure increases sensitivity to correlated shocks, such as construction delays, geological surprises, hydrological variability, transmission constraints and interest-rate tightening.

“During the monsoon, flash floods heighten physical and operational risks,” said Bhim Gautam, CEO of IPPAN. “In the dry season, power generation plummets as river flows fall.”

The IPO Machine 

While banks form the backbone in terms of capital, the capital market has become hydropower’s most visible storefront. The Securities Board of Nepal (SEBON) has approved 120 IPOs covering 91 companies. IPO issuances surged  in the mid-2010s and peaked in 2022/23 with 29 IPOs worth Rs 7.34 billion. Then the flow tightened abruptly, as subsequent years saw only minimal IPO activity. This pattern is consistent with a mix of saturation after a flood of listings, weaker secondary-market sentiment, regulatory tightening and fewer projects meeting issuance-readiness thresholds.

In aggregate, 93 power  companies have raised Rs 41.65 billion through IPOs and approximately 14.7 million Nepalis have participated in hydropower IPO subscriptions. As of early 2025,  these listed companies account for about 8.986 million shareholders. However, IPO participation is higher, with more than 14.47 million subscription entries recorded. This is largely because many investors subscribe for allotment but sell soon after listing. The rush to subscribe—and the post-listing sell-off—can create volatility and reward momentum over fundamentals, potentially weakening governance discipline where shareholder attention is short and fragmented. At the same time, it signals a democratization of ownership. For many households, hydropower shares have become a proxy for participating in national development.

The Dynamics of the Bankability Bridge

Among privately-promoted projects, 204 operational projects generate 2,948  MW, while 143 
under-construction projects have a total installed capacity of 4,303  MW. This signals a shift toward fewer, larger plants. This skew matters because larger projects raise concentration risk for lenders,  and they increase system-wide stakes when  delays and overruns occur.

Across the private portfolio,  total investment is funded by Rs 439.82 billion in equity and Rs 
870.79 billion in bank financing—a split consistent with the familiar 30:70  equity-to-debt template of project finance.

The sequencing of this capital is more important than the aggregate ratio. Loans are concentrated  almost entirely  in projects that are already operational or under  construction, where estimated debt stands at Rs 870.79 billion alongside  Rs 373.20 billion in equity. By contrast, the development-phase pipeline shows Rs 66.62 billion invested entirely through equity, with no bank-loan investment reported. This reflects standard risk allocation:  banks typically enter only once licensing is cleared, offtake arrangements such as Power Purchase Agreements are secured, and construction readiness is credible. Equity sponsors carry the uncertain early steps, placing a  spotlight on the core bottleneck: the “bankability bridge” from development-phase equity spending to construction-scale debt and financial closure. Whether this early-stage inventory becomes buildable capacity depends on how quickly projects can cross this bridge.

Private Drive, Policy Friction

Industry people claim that Nepal’s hydropower sector is a success story of the private capital. On the public-sector side, 565 MW of electricity is currently being generated from 15 projects  promoted by the Nepal Electricity Authority. More than Rs 101 billion has been invested in these  projects.

Even so, Karki said some policies are not private-sector-friendly. Karki argues  that private firms 
should be allowed to enter electricity trading and build transmission lines. “Environmental Impact 
Assessment (EIA) and Initial Environmental Examination  (IEE) processes have become excessively cumbersome for developers,” he added.

Gautam also says regulations need to be eased.  “For projects exceeding10 MW, penalties are imposed for under-generation if production falls below committed levels. This is a difficult requirement to meet given the current environmental volatility,” he added.

Similarly, Karki says delays in share issuance have pushed the number of projects awaiting  IPO 
approvals to around three dozen. “The provision allowing share  issuance only after electricity generation has begun  has adversely affected local and general investors,” he added.

Energy Secretary Chiranjivi Chataut says private-sector power  producers played a key role in  ending power  cuts. “When the private sector first entered the energy  sector, the emphasis was on generation. Now, the government will pursue a more balanced approach across  generation, transmission and distribution,” he added.

Systemic Risk and Export Readiness

Nepal’s success in mobilizing capital also creates vulnerability. With about 70% debt financing, 
the sector is sensitive to interest rates, refinancing  conditions and repayment schedules. If projects face delays or weaker-than-expected generation, stress transmits directly into bank balance sheets and the wider economy. Construction risk remains  structural in Nepal’s terrain, involving tunneling uncertainty, seasonal constraints and land acquisition. Hydrological variability affects revenue stability, while transmission remains the critical external dependency. Even a finished project cannot monetize output if evacuation lines and substations are not built on time. Furthermore, the retail IPO boom adds reputational and political risk. When millions of households participate, perceived mis-selling or chronic underperformance can spill into broader trust in the  capital market.

Export readiness adds another layer of risk into the narrative. Nepal’s hydropower growth 
increasingly relies on power  trade, particularly  with India. This brings cross-border 
transmission, trading mechanisms and geopolitical risk into the cash-flow equation.

“During the wet season, Nepal exports approximately 1,200  MW of electricity. However, export  capacity is severely bottlenecked by the fact that only one cross-border transmission line is currently available for trade,” Gautam said. “India is a vital market for Nepal, particularly  given its aggressive pursuit of clean energy. With stronger diplomatic engagement and more transmission lines, exports could grow significantly.”

The investment snapshot shows a sector that has achieved an unusually large-scale mobilization  of 
domestic capital for long-term infrastructure. But the next phase  will be judged less by installed 
capacity and more by delivery discipline: projects that reach financial closure, are commissioned on time and service debt without repeated restructurings.

“The private sector has sought permission to construct transmission lines and participate directly 
in power trading. However, the existing law excludes  private involvement from transmission and 
cross-border trade,” Gautam said. “This restriction will become a critical bottleneck as our 
generation capacity expands.”

For the capital market, the task is to enforce disclosure standards and standardize reporting on construction progress to ensure public offerings reflect project maturity rather than a rush to list. There is also an issue of corporate governance in Nepal’s hydropower sector, leaving retail investors with negligible returns and heightened risks. Founders and directors have been  executing aggressive exit strategies—selling off their stakes in the secondary market the moment mandatory lock-in periods  expire. This “pump and exit” behavior was confirmed by a SEBON study carried out two years ago, which found that directors in 20 listed companies had effectively abandoned their holdings. The study points to a structural flaw: founders frequently inflate project costs to secure excessive debt and public funding, only to cash out at the first opportunity.

Share prices in the secondary market are often  inflated by speculation around upcoming rights 
issues and the expiry of lock-in periods,  rather than supported by dividend fundamentals.
Nepal Stock Exchange  (NEPSE) data show that of the 97 listed hydropower companies, only 37 have ever distributed dividends. The remaining 60 have yet to deliver any returns to investors. Even so, investor appetite remains surprisingly resilient.

Nepali investors often  flock to IPOs without assessing a company’s financial health or earnings  
potential. Moreover, the policy requiring projects to be handed over to the government after 30 years continues to fuel uncertainty, leaving retail investors unsure about the long-term value 
of their equity.

For banks, headroom under  a sectoral cap does  not equal risk capacity. What matters more is 
underwriting discipline and rigorous  stress-testing. Lenders must be able to absorb shocks such
as delayed  grid connection or weak generation during the dry season.

For investors, hydropower will remain an attractive story, but returns will increasingly  depend on 
selectivity. In a sector where timelines  often  slip, the gap between a well-governed project with 
credible  offtake  and a speculative listing is wide. It can mean the difference between steady  dividends and years of idle capital.

“While the government’s roadmap targets 28,000 MW of generation, there is a glaring lack of a  corresponding strategy to increase domestic consumption or expand export infrastructure,” Gautam 
said. “This imbalance  between production and distribution planning poses  a serious  risk to the 
sector’s long-term sustainability.”

The money machine is running. The question is whether Nepal can keep it running without overheating the banking system—or disappointing the millions of retail investors who have channeled their savings in these rivers of capital.

(This report was originally published in February 2026 issue of New Business Age magazine.)