Nepal, with its mountainous terrain and abundant water resources, is poised to become a global leader in hydropower development. The country’s theoretical hydropower potential is an impressive 83,000 MW, with approximately 43,000 MW considered economically viable. This vast, untapped energy resource makes Nepal an attractive destination for both local and international investors looking to harness renewable energy.
Current Hydropower Landscape
As of 2023, Nepal has an installed hydropower capacity of 3,011.804 MW. The country generated 10,536 GWh of electricity in the same year, with 1,348 GWh exported to India, marking a significant milestone in Nepal’s energy sector. Despite this progress, a substantial portion of Nepal’s hydropower potential remains undeveloped, presenting exciting opportunities for new investments. The government’s target to generate over 25,000 MW of electricity and export 15,000 MW by 2035 further highlights the lucrative prospects within this sector.
Investment Opportunities
The hydropower sector in Nepal offers vast potential for investors, bolstered by the government’s proactive approach to attracting foreign investment. Several incentives make the sector even more appealing:
– Tax holidays: 100% income tax exemption for the first 10 years of commercial operation, and a 50% exemption for the following five years.
– Custom duties A nominal 1% duty on the import of construction equipment.
– VAT exemptions: Zero VAT on transactions involving machinery and equipment used for hydropower development.
In addition to tax benefits, the government offers attractive royalty schemes and visa facilities for foreign investors and their representatives, making it easier for international stakeholders to explore opportunities in this promising market.
Development Modalities
Hydropower projects in Nepal can be developed through two key modalities:
1. Licensing from the Department of Electricity Development (DOED: This involves a two-stage process where investors first obtain a survey license for conducting feasibility studies and, upon approval, a generation license to proceed with the project.
2. Competitive bidding: Projects studied by the government or where previous licenses have been revoked can be awarded to investors through a transparent bidding process. Major projects like Arun-III and Lower Arun Hydropower Project have been developed through this route.
A Streamlined Process
Establishing a hydropower project in Nepal is made investor-friendly through a well-structured process. This includes company incorporation, obtaining the necessary licenses, conducting feasibility studies, signing Power Purchase Agreements (PPA), and acquiring generation licenses. These steps are designed to ensure that investors have the support they need to execute projects efficiently and successfully.