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The 960 MW solar energy program initiated by the Nepal Electricity Authority (NEA) through competitive bidding appears to have encountered challenges at the implementation stage. Although power purchase agreements (PPAs) for most solar projects have been completed, construction has not progressed as expected.

According to Tharka Bahadur Thapa , Director of the Electricity Trading Department at the NEA, PPAs have been concluded for projects totaling around 836 MW out of the 960 MW target. He added that PPAs for the remaining 124 MW are still in process.

Due to many developers failing to move forward with construction after securing PPAs at very low rates, the future of these projects has become uncertain. Many solar developers initially bid aggressively low tariffs. The NEA had set a maximum PPA rate of Rs 5.94 per unit for solar electricity. Private developers then submitted bids ranging from Rs 4.99 to Rs 5.55 per unit. While the model initially appeared competitive and attractive, it is now proving difficult in practice.

Developers are increasingly complaining that construction is not financially viable at these rates. Although they secured contracts by offering low tariffs, managing costs at the construction stage has become a major challenge. Rising prices of solar panels, inverters, transformers, increased bank interest rates, transmission access issues, and land management problems have further complicated project execution, a power developer told Urja Sanchar.

Some developers have also applied to the Department of Electricity Development requesting changes in project sites, citing technical and geographical difficulties at the originally proposed locations. These requests are being reviewed based on justification and technical assessment.

Several developers report difficulties in securing financing, while actual project costs have significantly exceeded initial estimates, making project implementation challenging.

Under PPA terms, projects up to 10 MW are required to begin generation within 18 months, while larger projects must start within two years. However, many projects are still in early preparation stages, making it unlikely they will meet the deadline.

Following the 2017 framework introduced by the Ministry of Energy, Water Resources and Irrigation for grid-connected alternative energy development, Nepal adopted a competitive bidding system to accelerate solar energy expansion. Previously, solar PPA rates were as high as Rs 9.61 per unit, but after introducing competitive bidding, tariffs dropped significantly.

However, the current situation suggests that excessive cost-cutting in bids has increased implementation risks.

Energy experts say that prioritizing only the lowest price has led to insufficient evaluation of financial and technical capacity, increasing the risk of many projects becoming stalled.

While solar energy is considered an important component for diversifying Nepal’s energy mix, experts believe reforms are needed in PPA structures, timelines, transmission infrastructure, and project selection processes to improve implementation.

Although competitive bidding is necessary for solar energy development in Nepal, overemphasis on low tariffs appears to be increasing long-term execution risks.

Urjasanchar