Nepal’s hydropower and energy sector is no longer driven primarily by the state, but by the financial system itself, with commercial banks now carrying the single largest exposure in the country’s power industry, according to a new study by the Independent Power Producers’ Association, Nepal (IPPAN).

The study reveals that total private sector investment in Nepal’s energy sector has exceeded Rs 1.310 trillion, fundamentally reshaping the country’s infrastructure financing model. In comparison, government investment stands at just over Rs 101 billion, underscoring how decisively the private and banking sectors have overtaken the state as the main engines of power sector growth.

Banks Carry the Heaviest Financial Risk

Out of the total private investment, banks and financial institutions account for Rs 870 billion in lending to operating and under-construction private hydropower projects. This makes the banking sector the single largest stakeholder in Nepal’s energy future, with deep systemic exposure to hydropower performance, regulatory stability, and power market reforms.

By contrast, direct equity investment by private developers stands at Rs 403 billion, highlighting that the sector’s rapid expansion has been driven more by credit than by capital markets.

This structure, analysts say, has transformed hydropower into one of the most bank-dependent industries in Nepal’s economy, directly linking financial sector stability with energy sector policy.

Capital Markets Also Deeply Linked to Hydropower

The study shows that hydropower has become one of Nepal’s most widely held investment sectors among the public.

Hydropower companies have raised Rs 41.65 billion through initial public offerings (IPOs), with 1.63 million citizens allotted shares. In the secondary market, the number of hydropower shareholders has reached 1.08 million, demonstrating that power generation is now directly tied to household wealth and retail investor sentiment.

IPPAN estimates that around 11.3 million Nepalis are now directly or indirectly invested in the energy sector, making hydropower not only an infrastructure industry but also a mass public investment platform.

Private Sector as the Backbone of Power Security

IPPAN President Ganesh Karki said Nepal would still be suffering from chronic load-shedding without private sector participation.

“Without private investment, the country would still be facing daily power cuts,” Karki said, crediting independent power producers with transforming Nepal from an energy-deficit country into one approaching surplus generation.

He said more than 900 hydropower projects have already received licenses. Projects totaling 11,600 MW are at various stages of development, while power purchase agreements (PPAs) have been signed for nearly 16,000 MW.

Of this, around 4,000 MW has already been connected to the national grid, and another 5,000 MW is under construction.

Aggressive National Generation Targets

Karki welcomed the government’s energy roadmap targeting 28,500 MW of electricity generation, including 13,500 MW for domestic consumption and 15,000 MW for export to neighboring countries.

He said the targets are strategically sound for strengthening Nepal’s energy security, reducing fuel imports, improving the balance of payments, and positioning Nepal as a regional clean energy exporter.

However, he warned that recent policy decisions are undermining investor confidence.

Policy Risks for Bank-Financed Hydropower Boom

Karki said the newly introduced “take and pay” policy has created uncertainty among investors and lenders, as it weakens revenue certainty for power producers. He also called for allowing the private sector to enter electricity trading, warning that insufficient transmission infrastructure is forcing generated electricity to go to waste.

Lengthy environmental impact assessment (EIA) and initial environmental examination (IEE) procedures were also cited as major bottlenecks delaying projects and increasing financial risk.

Given banks’ massive Rs 870 billion exposure, IPPAN leaders cautioned that policy instability could translate into financial sector stress if projects face payment delays or curtailment.

Enormous Untapped Renewable Energy Potential

IPPAN Senior Vice-President Mohan Kumar Dhakal said Nepal’s long-term prosperity depends on energy, tourism, and agriculture, with hydropower at the center of the development strategy.

He said Nepal has more than 82,000 MW of hydropower potential and over 40,000 MW of solar energy potential, positioning the country as a future clean energy hub in South Asia.

Nepal’s current installed electricity capacity stands at 3,195 MW. Over the past 26 years, the private sector alone has added 3,335 MW, underscoring its dominant role in sectoral expansion.

Dhakal said private producers now account for 83 percent of total electricity generation, with an even larger share in the 5,700 MW currently under construction.

Warning of a Policy-Driven Power Crisis

Dhakal warned that Nepal is certain to reach 10,000 MW of installed capacity within the next two to four years. Without timely reforms in electricity trade, transmission development, and cross-border power markets, he cautioned that Nepal could face a new type of crisis - not power shortages, but surplus power without buyers.

He stressed that global best practices support private sector participation in electricity trading and transmission development, and Nepal must align with international energy market models to sustain its hydropower-led growth.

With banks now carrying the largest financial exposure and millions of citizens tied to hydropower through capital markets, Nepal’s energy policy is no longer just an infrastructure issue - it has become a core pillar of financial stability and economic growth.