It is well known that Nepal has immense potential in the hydropower sector. Nepal is home to over 6000 rivers and streams, which provide an annual runoff of an estimated 225 billion cubic meters of water. This is supported by Nepal’s diverse geographical structure favoring hydroelectricity generation ranging from 1 Kilowatt (KW) micro-projects to massive 11,000 Megawatt (MW) projects. According to Clean Edge Asia, Nepal’s theoretical and viable capacity of hydroelectricity production stands at 83,000 MW and 42,000 MW, respectively. Currently, it has a production capacity of 2150 MW after 710 MW of energy was added to the national grid during 2078 BS.
Hydropower stands as a form of renewable and clean energy, playing a pivotal role in mitigating rapid climate change. It operates without burning any fuel to generate energy, thereby avoiding the emission of greenhouse gases. As a result, it becomes an economical energy source once the necessary infrastructure is established. Furthermore, the water used for electricity generation can also serve other purposes like fisheries, irrigation, and domestic as well as industrial supply. Due to these benefits, the demand for hydropower remains robust, fostering substantial potential for returns from investing in hydropower stocks.
The rise of hydropower companies in Nepal
The charm for hydro investment has only increased after the entry of Kulman Ghising, the current managing director of Nepal Electricity Authority (NEA.) Upon his arrival, the country has seen an end to the long hours of power outages. He has overseen the completion of projects such as the Upper Tamakoshi Hydroelectric Project (456 MW), Likhu-IV Hydroelectric Project (52.4 MW), Upper Trishuli III A Hydropower Project (60 MW), Kulekhani Reservoir-based Hydropower Project (14 MW), etc. Besides, he has managed to heavily reduce the theft and loss of electricity during his tenure from 25% leakage to around 14 %. Similarly, Ghising has upgraded transmission lines, distribution lines, and substations to facilitate better electricity distribution.
Best hydropower in Nepal
This has enabled NEA to become a profitable institution which is a good sign for hydropower projects as their production is being accumulated and redistributed effectively by them. The biggest positive in recent times has been NEA exporting surplus energy to neighbor India through the Indian Energy Exchange.
In June 2022, Nepal achieved a remarkable feat by earning an unprecedented Rs 1.72 billion through the export of 364 MW of hydro energy. These exports are not only bolstering the revenue of hydro projects but also increasing returns for investors. With more projects nearing completion, Nepal is projected to export 2456 MW of electricity by FY 2025/26. Currently, some of the major hydropower projects operational in Nepal include the following:
|SN||Name of Project||Capacity (MegaWatt)||Location|
|1||Upper Tamakoshi Hydropower||456||Sunkoshi|
|2||Kaligandaki A Hydropower||144||Syangja|
|4||Middle Marsyangdi Hydropower||70||Lamjung|
|6||Khimti Khola Hydropower||60||Dolakha|
|7||Kulekhani I Hydropower (Reservoir)||60||Makwanpur|
|8||Upper Trishuli 3A Hydropower||60||Rasuwa|
|9||Upper Marsyangdi A Hydropower||50||Lamjung|
|10||Upper Bhotekoshi Hydropower||45||Sindhupalchowk|
|11||Kulekhani II Hydropower||32||Makwanpur|
The Nepalese Government is actively encouraging electricity consumption within the country. This intention is evident in the budget for the upcoming fiscal year, which includes provisions promoting the use of electric vehicles and induction cookers. Conversely, there has been a removal of the subsidy on LPG, resulting in increased prices.
Additionally, there is an income tax holiday facility available for hydropower projects. Projects commencing operations before Chaitra 2082 are eligible for income tax remission during the first fifteen years of operation. Similarly, there is a one percent taxation on the purchase of construction materials, machinery, equipment, and more.
A liberal foreign investment policy has been pursued and the new monetary policy for 2079/80 has required banks and financial institutions to increase their credit investment in the energy sector.
Rise of the bull in hydropower stocks: Nepse
Recognizing the ever-expanding potential of the hydropower sector, numerous new projects are being initiated. Consequently, a steady stream of hydropower IPOs is regularly being offered, with projects such as Eastern Hydropower Ltd, Molung Hydropower Company, Asian Hydropower, and more in the pipeline. There exists a notable enthusiasm among investors to invest in hydropower due to the attractive returns they provide through bonus shares and cash dividends. As an example, a prominent project like Chilime Hydropower has distributed a 7.5% bonus share and cash dividend for the fiscal year 2077/78.
Amidst the COVID-19-induced lockdown, when investment opportunities were scarce, the Nepal Stock Exchange (NEPSE) index witnessed a significant bullish trend, soaring to an all-time high of 3198.6. The hydropower sector stood out as one of the highest gainers during this period, with its sectoral index surging beyond 3600 points. However, there was a phase when stocks of hydropower companies became exceedingly overvalued due to surging demand. Despite supporting hydropower companies, market volatility cannot be overlooked, underscoring the importance of careful stock selection for our portfolios. The current liquidity crunch and diminishing foreign reserves have left the Nepalese economy in a precarious state. Consequently, the stock market has recently experienced a bearish trend. This underscores the necessity of diligent research and investment in fundamentally strong stocks to optimize gains and minimize losses.
Hydropower serves as the backbone of Nepal’s economy. By harnessing and exporting hydroelectricity, Nepal can not only fuel economic growth but also alleviate its trade deficits and balance of payments. The shift from petroleum-based energy to renewable hydro energy presents an avenue to regulate imports and bolster the nation’s foreign reserves. In tandem, hydro projects hold the potential to uplift local communities by creating jobs, providing essential water resources, enabling irrigation, and granting them a stake in the projects.
In a nutshell, Nepal’s unwavering commitment to expanding its hydropower capacity underscores its recognition as a critical sector. Realizing its hydroelectric potential positions Nepal to emerge as a power hub within South Asia, enhancing its sway in geopolitical affairs. Moreover, a promising market awaits investors in Nepalese hydropower stocks, offering the prospect of substantial returns for those who navigate wisely.