Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

Hydro, solar and wind power are considered to be renewable or clean energy. However, there is no specific legal definition for renewable energy.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

The MoE issues survey licences, which grant the holder thereof the exclusive right to conduct feasibility studies and environmental impact assessments for renewable energy projects in a designated licence area. Survey licences may have a term of one year or two years depending on the size of the project. They may be extended for a maximum term of up to five years at the discretion of the MoE.

The MoE also issues generation licences, which grant a concession to the holder thereof to construct, operate and maintain a generation facility on a build, own, operate, transfer model. Generation licences may have a term of up to 30 years.

If the construction of a transmission line to connect a generation facility to the NEA’s transmission system is necessary, then the project company will need to apply for and obtain a transmission licence. Licences for these types of connecting transmission lines are co-terminus with the corresponding generation licence.

A concession agreement can be signed with the government if required by the developers or international lenders. Locally sourced financing does not require a concession agreement, but local debt markets do not have the depth to provide the quantity of financing or the tenors that are required to finance large IPPs.

Upon completion of the concession period, the project will be transferred to the government at no additional cost to the government. In most cases, however, the power purchase agreements entered into by the NEA have a term of only 25 years from and after the commercial operations date. No private project has completed the initial period of 25 years.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

The government has offered income tax exemptions (tax holiday) for a period of 10 years from and after the commercial operations date and a 50 per cent exemption thereafter for five years, provided that a developer achieves commercial operations on or before 12 April 2024. The government has also offered a VAT refund of 5 million Nepalese rupees per megawatt for those who achieve commercial operations by that date.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

All energy policies, including those that relate to renewable energy, are established at the national level.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

An electricity bill that would replace the electricity act that is currently in force has been before Parliament for some time with little progress. The main objective of the bill is to establish clearer procedures for the licensing of generation projects.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

The power purchase agreements the NEA enters into typically contain arbitration provisions. Nepal is a contracting party to both the New York Convention and the Washington Convention.