An analysis of Nepal’s hydropower sector highlights why investors are becoming more interested in specific types of hydro projects like reservoir and peaking run of river plants.
The Global Rise of AI and Nepal’s Energy Potential
With artificial intelligence, data centers, and robotics growing fast around the world, electricity is going to become a very important strategic asset in next ten years. For a country like Nepal, which has huge hydropower potential, this energy sector can bring amazing new opportunities. Even the famous businessman Elon Musk has said that huge power supplies will be needed to run data centers and robots, making electricity a key factor in future economic competition. While America and China are leading in AI, India is also investing heavily in data centers. This growing energy demand in India can be a great chance for Nepal. In fact, Nepal and India have already signed an agreement to export up to 10,000 megawatt of electricity from Nepal in next 10 years. Also, the way has opened to export Nepal’s electricity to Bangladesh using the Indian transmission grid.
The Problem of Seasonal Imbalance in Nepal’s Hydro
The main challenge for Nepal’s hydropower sector is the seasonal mismatch between electricity generation and demand. Most of the projects in Nepal are Run of River (RoR) type. This means they produce a lot of electricity during rainy season, but because local demand is low, Nepal has to export the extra power. In winter, water flow in rivers drops and production goes down, but since demand is high, Nepal has to import electricity from India. Therefore, just increasing production capacity is not enough. Nepal needs projects that can supply power when it is needed the most. Because of this, reservoir projects and Peaking Run of River (PRoR) projects will play a much bigger role. Reservoir projects store water during rainy season to make electricity in winter, while PRoR projects can use stored water to produce extra electricity during peak demand hours.
How This Affects Stock Market Investors
This big change is starting to affect how investors evaluate listed hydropower companies in stock market. It is not just about the projects currently running, but also about future projects, investments in subsidiary companies, and the type of hydro project. For example, Sahas Urja has an 86 megawatt project running, but they also have investments in PRoR projects through subsidiary. Their involvement in a 341 megawatt project in the Budhigandaki area has also made investors very interested in them. However, making investment decisions just because the share price is going up is not a good idea. Investors must look at the financial health, debt levels, cost of production, PPA, construction progress, and feasibility of future projects.
Electricity Rates and Future Targets
The Nepal Electricity Authority has set different purchase rates depending on the type of project and season. For RoR projects, the rate is Rs. 4.80 per unit in wet season and Rs. 8.40 per unit in dry season. For PRoR projects, the rate is between Rs. 8.50 and Rs. 10.55 per unit depending on peaking hours. For reservoir projects, the rate is Rs. 12.40 per unit in dry season and Rs. 7.10 per unit in wet season. This shows that projects which can provide power during high demand times have much more economic value.
The government of Nepal has set a big target to produce 28,500 megawatt of electricity by 2035. Out of this, they plan to use 13,500 megawatt inside the country, export 10,000 megawatt to India, and 5,000 megawatt to Bangladesh. But to reach this target, just increasing production is not enough. We need to increase local consumption, build transmission lines, secure export markets, and focus on reservoir and PRoR projects. That is why, when investing in hydro companies, you should look beyond name or share price. You must study the project type, construction progress, project cost, debt, PPA, future plans, market, profit, cash flow, and lock-in periods.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
