Table of Contents
Nepal’s hydropower sector is one of the fastest-growing industries in South Asia. With massive rivers, strong government focus, and private sector involvement, Nepal aims to become a regional energy exporter. But behind this growth lies a complex legal framework that governs licensing, generation, transmission, distribution, foreign investment, and energy trade.
This guide breaks down Nepal’s major laws, policies, regulatory bodies, and FAQs related to energy and hydropower law simplified for entrepreneurs, investors, students, and legal researchers.
Overview of Energy & Hydropower Law in Nepal
Nepal’s energy sector is regulated through a combination of acts, regulations, and policies that emphasize:
Hydropower development
Energy security
Private sector participation
Licensing and compliance
Safety and environmental protection
Foreign investment
Export of electricity
The key laws are:
- Electricity Act 2049 (1992)
- Electricity Regulation 2050
- Hydropower Development Policy 2058
- Electricity Regulatory Commission Act 2074
- Public-Private Partnership (PPP) laws
- Environment Protection Act
Electricity Act 2049 (Main Hydropower Law of Nepal)
The Electricity Act 2049 governs the entire hydropower value chain.
It deals with:
- Licensing for generation, transmission & distribution
- Power purchase agreements (PPAs)
- Safety standards & technical requirements
- Royalties, tariffs & fees
- Private sector involvement
- Export & import of electricity
Under this Act, any company or individual generating hydropower must obtain:
Survey License
Generation License
These licenses allow feasibility studies, environmental impact assessment, project construction, and power operation.
Hydropower Development Policy 2058
The Hydropower Policy 2058 was introduced to promote faster development and reduce bureaucratic delays.
Key objectives include:
Encouraging private sector investment
Promoting small, medium, and large hydropower projects
Ensuring reliable and affordable electricity
Supporting rural electrification
Facilitating electricity export
Protecting the environment and ensuring sustainable development
The policy also outlines the government’s role in transmission line expansion and grid reliability.
Electricity Regulatory Commission Act 2074
The Electricity Regulatory Commission (ERC) was established in 2074 to regulate Nepal’s power sector independently.
Major functions include:
Setting electricity tariffs
Licensing distribution companies
Monitoring consumer protection
Supervising power quality
Resolving disputes between NEA, IPPs, and consumers
Ensuring fair competition in energy markets
ERC operates as the watchdog to maintain transparency and efficiency in Nepal’s electricity ecosystem.
Licensing Structure for Hydropower in Nepal
To develop hydropower legally, a developer must follow the licensing structure:
1. Survey License
- Allows feasibility study, EIA, DPR preparation
2. Generation License
- Allows construction of the hydropower plant
3. Power Purchase Agreement (PPA)
- A contract with NEA or private off-taker
4. Grid Connection Approval
- Technical clearance for connecting to the national grid
5. Operation License
- For running power generation commercially
Taxes and Royalties for Hydropower Developers
Hydropower companies must pay:
1. Capacity royalty
- Based on MW capacity
2. Energy royalty
- Based on electricity generated
3. Corporate tax
- With certain tax holidays for hydropower projects
4. Customs & VAT concessions
- On machinery and equipment
Nepal offers special incentives to attract foreign investors.
Environmental and Social Compliance
Every hydropower project must follow:
Environmental Impact Assessment (EIA)
Community compensation
Land acquisition rules
Water rights management
Disaster safety standards
Non-compliance can delay licensing and invite heavy penalties.
Importance of Hydropower Development in Nepal
Hydropower is Nepal’s strongest economic pillar, offering:
Long-term energy security
Industrial growth
Export potential
Employment opportunities
Rural electrification
Foreign revenue generation
Nepal aims to produce over 10,000 MW of electricity annually by 2030.
Conclusion
Energy and hydropower law in Nepal is built to promote sustainable development, attract investment, and expand the national power grid. With various policies, acts, and regulatory bodies working together, Nepal is positioning itself as a global hydropower hub.
Frequently Asked Questions
1) What is the energy law in Nepal?
Energy laws in Nepal include the Electricity Act 2049, Hydropower Policy 2058, ERC Act 2074, and related environmental and licensing regulations that govern production, distribution, export, and investment in energy.
2) What is the hydropower policy in Nepal?
The Hydropower Development Policy 2058 promotes private-sector investment, regulates licensing, ensures affordable electricity, supports rural electrification, and facilitates the export of electricity.
3) What is the Electricity Act 2049 in Nepal?
It is the primary law that sets rules for hydropower licensing, power generation, transmission, distribution, PPAs, royalties, safety, and private sector participation.
4) What is the Electricity Regulatory Commission Act 2074?
It established the ERC, an independent regulator responsible for tariff setting, licensing, consumer protection, dispute resolution, and monitoring electricity market fairness.
5) Who regulates hydropower companies in Nepal?
The ERC, DoED (Department of Electricity Development), NEA, and Ministry of Energy regulate the sector collectively.
6) Can foreign companies invest in Nepal's hydropower sector?
Yes, Nepal encourages FDI in hydropower with tax holidays, royalty concessions, and PPA guarantees.
7) Is PPA mandatory for hydropower projects?
For commercial operation, yes, unless the project is captive or off-grid.
Disclaimer: This article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation or inducement of any sort from the firm or any of its members. The firm shall not be liable for consequences arising out of any action undertaken by any person relying on the information provided herein.