+16 Capital Reference Document | April 2026
A plain-English explanation of every term used across our NEA, SHPC, and SAHAS research. Organized by category.
The Big Picture — Who Does What
NEA — Nepal Electricity Authority
The government-owned company that runs Nepal's entire electricity system. It generates some power itself (from its own old dams), buys all power from private producers, and delivers it to homes and businesses through its wires. Think of it as the single wholesaler, grid owner, and retailer of electricity in Nepal — all rolled into one. Every private hydro company sells its power exclusively to NEA. If NEA can't pay, the entire sector is in trouble.
IPP — Independent Power Producer
Any private company (not the government) that builds and operates a power plant and sells the electricity it generates. In Nepal, this means private hydro companies like SHPC, SAHAS, AKPL, BPCL etc. They are "independent" from the government. They build the dam, run the turbines, and sell every unit of electricity they produce to NEA under a long-term contract. They have no other legal buyer in Nepal currently.
GoN — Government of Nepal
The federal government. Owns 100% of NEA. Sets energy policy. Can inject capital into NEA if needed. The sovereign backstop — meaning if NEA is truly in trouble, GoN is the last resort guarantor.
DoED — Department of Electricity Development
The government office that issues licenses to IPPs to develop hydro projects. You cannot build a hydro project in Nepal without a DoED license. They also monitor project construction and can revoke licenses if developers don't meet milestones.
ERC — Electricity Regulatory Commission
The independent regulator (in theory) that sets the prices consumers pay for electricity and approves the tariff rates NEA can charge. It also approves PPA terms between NEA and IPPs. In practice, it operates with significant political influence.
The Contract at the Center of Everything
PPA — Power Purchase Agreement
The contract between a private hydro company (IPP) and NEA. It specifies:
- How much power the IPP will deliver
- What price NEA will pay per unit (the tariff)
- For how long (typically 30 years)
- What happens if the IPP can't deliver or NEA can't absorb
This is the most important document in Nepal's hydro sector. Without a PPA, an IPP cannot get bank loans to build its project. Everything — the investment thesis, the cash flows, the risk profile — flows from this one contract.
Tariff
The price NEA pays to an IPP for each unit of electricity, expressed in NPR per kWh (kilowatt-hour). Nepal uses a two-tier seasonal tariff:
- Wet season rate: NPR 4.80/kWh (approximately mid-April to mid-December, when rivers are full from monsoon and snowmelt)
- Dry season rate: NPR 8.40/kWh (approximately mid-December to mid-April, when rivers run low and power is scarce)
The dry season rate is 75% higher because power is scarcer and more valuable then. Standard run-of-river projects get 3% escalation every 5 years, capped at 5 escalations — meaning after 25 years, the tariff is fixed in nominal terms and declines in real (inflation-adjusted) terms every year after.
Take-or-Pay
A clause added to PPAs (post-2024 reform) that says NEA must pay for the contracted volume of electricity whether or not it can actually use it. Before this, NEA could "curtail" (switch off) an IPP during wet-season surplus without paying. Now it cannot. This protects IPP investors — their revenue is guaranteed regardless of grid conditions — but shifts the surplus risk to NEA's balance sheet.
Contracted Energy
The volume of electricity (in GWh per year) that an IPP is contractually expected to deliver to NEA. Set in the PPA based on river flow data. If the IPP delivers less than contracted (due to low rainfall, equipment failure, etc.), it may still owe NEA a penalty in some agreements.
Types of Hydro Projects
Run-of-River (RoR)
The most common type of hydro project in Nepal. The river flows in, turns the turbines, and flows out — no large dam or reservoir to store water. Think of it like a water wheel. This means:
- Power output follows the river's natural seasonal flow (high in monsoon, low in winter)
- Lower construction cost than storage projects
- Cannot produce on demand — you generate when the river flows
- SHPC's Mai Khola projects and SAHAS's Solu Khola are both RoR
The core weakness of RoR: You generate a flood of cheap electricity in wet season (when everyone else also has surplus and prices are low), and very little in dry season (when prices are high and Nepal needs power most).
Peaking Run-of-River (PROR)
A hybrid — it's still run-of-river (no large storage reservoir) but has a small pondage (mini-reservoir, usually a few hours of storage) that allows the project to hold water during off-peak hours and release it during peak demand hours. This makes it more valuable than standard RoR because it can generate power when the grid needs it most. Earns a premium tariff.
Storage Hydro
Has a large reservoir (a real dam) that can store weeks or months of water. Can generate power on demand regardless of season. Kulekhani in Nepal is the only true storage project currently operational. Far more valuable than RoR but costs 4-5x more to build per MW and takes much longer to construct. Budhi Gandaki (1,200 MW) is Nepal's biggest planned storage project.
MW — Megawatt
A measure of power capacity — how much electricity a plant can produce at any given moment. A 22 MW plant (like Mai Khola) can power roughly 22,000 average Nepali homes simultaneously at peak. Total Nepal grid: ~3,500 MW installed.
GWh — Gigawatt-Hour
A measure of energy over time — how much electricity is actually generated over a period. A 22 MW plant running at full capacity for a full year would theoretically produce 22 × 8,760 hours = 192.72 GWh. But rivers aren't full all year, and plants need maintenance, so actual output is always less.
kWh — Kilowatt-Hour
The unit on your electricity bill. One kWh = 1,000 watts for one hour. The tariff (NPR 4.80 or 8.40) is per kWh. 1 GWh = 1,000,000 kWh.
PLF — Plant Load Factor
The percentage of the theoretical maximum power a plant actually produces. A 22 MW plant running at 100% for a full year = 192.72 GWh theoretical. If it actually produces 128 GWh, its PLF = 128/192.72 = 66%. Higher PLF = better performance. RoR plants in Nepal typically achieve 60-75% PLF depending on river characteristics and monsoon strength.
P50 / P90
Statistical estimates of a hydro project's generation output:
- P50: The generation level that is exceeded 50% of the time (average / median expectation)
- P90: The generation level exceeded 90% of the time (conservative — a "bad year" estimate)
Banks use P90 for loan sizing (the worst realistic case). Investors use P50 for valuation. A project generating above its P50 consistently is outperforming. Below P90 in multiple years is a red flag.
Design Energy
The annual generation (in GWh) the project was designed to achieve under average hydrological conditions. Specified in the PPA as the contracted energy commitment.
Project Lifecycle Terms
COD — Commercial Operation Date
The date when a hydro project officially starts commercial operation — generating power and earning revenue under the PPA. Before COD, the project is in construction. After COD, the PPA clock starts ticking (30-year revenue countdown begins). Delays to COD are costly because every month of delay = lost revenue with interest still accruing on construction loans.
Financial Close
The point at which a project has all its financing (bank loans + equity) committed and can start construction. This is different from having a license or a PPA — you can have both and still not have financial close if banks aren't confident in the project. Financial close is the real starting gun for construction.
CWIP — Capital Work in Progress
Assets that are being constructed but not yet generating revenue. On NEA's balance sheet, NPR 257bn of CWIP represents massive hydro and transmission projects under construction (Budhigandaki, grid expansion, etc.). Once construction completes and assets are commissioned, CWIP converts to PPE (Plant, Property & Equipment) on the balance sheet and starts earning revenue.
PPE — Property, Plant & Equipment
The accounting term for the physical assets a company owns and uses to generate revenue — for a hydro company, this means the dam, turbines, penstock (the pipes carrying water), powerhouse building, and transmission lines. Depreciated over their useful life (typically 30-50 years for hydro assets).
Force Majeure
An event beyond anyone's control that legally excuses performance of a contract — floods, earthquakes, landslides, wars. In SHPC's case, the Ashwin 2082 flood that damaged the Mai Khola headworks was a force majeure event, excusing SHPC from delivering contracted energy during the repair period and triggering insurance claims.
GLOF — Glacial Lake Outburst Flood
A sudden catastrophic release of water from a glacial lake — essentially a natural dam break. Nepal has hundreds of glacial lakes in the Himalayas, and climate change is making them larger and more unstable. A GLOF on a river where a hydro plant sits can destroy the entire project. This is one of the tail risks for any hydro plant on a glacial river system (Tamakoshi, Sun Koshi, Trishuli corridors).
Financial Terms
System Loss
The percentage of electricity that disappears between generation and delivery to customers — stolen, leaked through inefficient wires, or lost to technical inefficiency. Nepal's system loss was 25.78% in FY16 (nearly 1 in 4 units of power was lost before reaching anyone). Now at 12.26%. The global benchmark for well-run grids is 6-8%. Reducing system loss is effectively free revenue — every percentage point recovered adds NPR 1-1.5bn to NEA's effective revenue.
T&D — Transmission & Distribution
The wire network that carries electricity from where it's generated to homes and businesses. Transmission = the high-voltage long-distance lines. Distribution = the lower-voltage local network that delivers to your house. System losses occur primarily in the distribution network (the last mile). NEA owns both.
Spread (Power Sector Context)
The difference between what NEA pays to buy electricity (from IPPs + its own plants + India) and what it earns selling that electricity to consumers. NEA's current blended purchase cost is NPR 6.08/kWh and average sale price is NPR 9.13/kWh. Nominal spread = NPR 3.05/kWh. After system losses (~12%), effective spread is lower. This spread must cover all of NEA's operating costs, depreciation, and interest. It is shrinking.
D/E — Debt to Equity Ratio
Total debt divided by shareholder equity. Measures how leveraged a company is. A D/E of 1.0x means for every NPR 1 of equity, there's NPR 1 of debt. For hydro companies (which are capital-intensive), D/E of 1.0-2.0x is normal. Above 3x is high risk. SHPC's D/E has fallen from 0.71x to 0.15x — almost debt-free.
P/E — Price to Earnings Ratio
Share price divided by earnings per share (EPS). Tells you how many years of current earnings you're paying for. SHPC at NPR 627 with normalized EPS of ~NPR 13 = ~48x P/E. High, but includes value of the embedded investment portfolio. Nepal hydro stocks typically trade at 20-50x P/E.
P/B — Price to Book Ratio
Share price divided by book value per share (net assets). SHPC at NPR 627 with book value NPR 177 = 3.5x P/B. Means the market values the company at 3.5x what its assets are worth on paper — premium for the PPA revenue stream and the Sanima group.
EPS — Earnings Per Share
Net profit divided by total shares outstanding. SHPC FY81/82 PAT = NPR 325M ÷ 37.4M shares = NPR 8.70 EPS. The "normalized" EPS (excluding the force-majeure year) is ~NPR 12-14.
ROE — Return on Equity
Net profit as a percentage of shareholder equity. Measures how efficiently the company uses investor money. SHPC FY81/82 ROE = 8.7% (depressed by the force-majeure year). Normal years: 13-17%.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating cash generation before financing costs and accounting adjustments. Hydro companies have very high EBITDA margins (often 70-85%) because once the plant is built, variable costs are minimal — no fuel, just maintenance and staff.
Free Cash Flow (FCF)
The cash a company actually generates after paying for its operations and necessary capital expenditure. For a mature, operating hydro IPP, FCF = revenue from NEA − operating costs − debt service (interest + principal repayment). Once debt is paid down, FCF rises dramatically — this is the "deleveraging inflection" investors wait for.
The Grid & Power Trade
IEX — Indian Energy Exchange
India's electricity spot market where buyers and sellers trade power in real-time (Day-Ahead Market) and short-term (Weekly Market). Nepal sells surplus wet-season power on IEX when it can. IEX prices fluctuate by season — typically INR 4-6/kWh in dry season, INR 2.5-4/kWh in wet season when everyone else also has surplus hydro.
Wheeling
The fee paid to transmit electricity across someone else's power lines. If Nepal exports to Bangladesh, the electrons physically travel through India's grid — India charges Nepal a "wheeling charge" for this. Currently a binding constraint on Bangladesh exports at scale.
Cross-Border Power Trade
Nepal selling electricity to India or Bangladesh. Currently only NEA can do this (IPPs sell to NEA, NEA exports). Revenue from exports was NPR 17.5bn in FY24/25 (~14% of NEA's total revenue). The most important growth driver for Nepal's power sector economics over the next decade.
Peak Demand
The highest level of electricity demand at any point in a given period — usually occurs in evenings (5-9pm) when factories, offices, and homes are all drawing power simultaneously. Nepal's current peak demand is ~2,300 MW. This is the number against which installed capacity (3,500 MW) is compared.
Load Shedding
Planned power cuts when electricity generation cannot meet demand. Nepal had 12-16 hours of load shedding per day until 2018. Now eliminated. Can return if generation capacity falls (drought) or demand spikes faster than supply can respond.
Curtailment
When the grid has more electricity than it can use or export, and generators are told to reduce or stop production. Under old PPA rules, NEA could curtail IPPs during wet-season surplus without paying. Under the new take-or-pay rules (post-2024), NEA must pay even for curtailed energy.
Nepal-Specific Context
Bikram Sambat (BS) Calendar
Nepal uses a different calendar than the Gregorian calendar. The Nepali fiscal year runs roughly mid-July to mid-July. So:
- FY 2081/82 BS ≈ FY 2024/25 CE (Gregorian)
- FY 2076/77 BS ≈ FY 2019/20 CE
When reports say "FY 81/82," they mean the Nepal fiscal year ending in mid-July 2025.
NEPSE — Nepal Stock Exchange
Nepal's only stock exchange, located in Kathmandu. All publicly listed companies (including hydro IPPs like SHPC, SAHAS, AKPL, BPCL, etc.) trade here. Market capitalization is ~NPR 2,000-2,500bn (~USD 15-18bn). Hydro IPPs make up a large portion of listed companies by count but vary enormously in quality.
NPR — Nepalese Rupee
Nepal's currency. Fixed peg to Indian Rupee at NPR 1.60 = INR 1.00. As of April 2026, approximately NPR 130-135 = USD 1. All hydro PPA revenues are in NPR — no USD or INR denomination, which means no currency upside but also no currency risk post-construction.
Promoter Shares vs. Public Shares
In Nepal, hydro IPPs issue shares to two groups:
- Promoters: Founders, project developers, and Nepali citizens in project-affected areas (usually 30-51% of total shares). Often locked in for several years. Promoters get shares at face value (NPR 100) before IPO.
- Public: Retail investors who buy through the IPO and on NEPSE. Pay market price.
Promoter cost basis is NPR 100/share; public may pay NPR 400-700+. This is why comparing promoter returns and public investor returns for the same company can look very different.
IPO — Initial Public Offering
When a hydro company sells shares to the public for the first time on NEPSE. Nepal has had dozens of hydro IPOs in the past 5 years. Quality varies enormously — some are well-run operating plants; many are early-stage projects with no revenue yet.
Key Metrics We Track
NEA Receivables (from IPP annual reports)
The amount NEA owes to an IPP but hasn't paid yet. Expressed on the IPP's balance sheet as "Trade Debtors — NEA" or similar. A healthy level is 30-60 days of annual revenue. Growing receivables (faster than revenue) = NEA is slow-paying, which is an early warning sign of NEA financial stress. SHPC: NPR 422.9M (stable). SAHAS: NPR 412M (growing 27% vs. 8% revenue growth — a yellow flag).
Generation Achievement %
Actual GWh produced ÷ Contracted GWh × 100. Above 90% = excellent. Below 75% = problem (hydrology, equipment, or force majeure). SHPC achieved only 72% in FY81/82 due to flood damage — but this was force majeure, not operational failure.
Debt Service Coverage Ratio (DSCR)
Operating cash flow ÷ (annual debt principal + interest). Banks typically require DSCR ≥ 1.20x. Below 1.0x means the company cannot service its debt from operations. As SHPC's debt approaches zero, DSCR approaches infinity — the best possible trend.
This glossary covers all key terms used in the NEA Company Report, SHPC Investment Report, SAHAS Investment Report, and Nepal Hydro Industry Report. Update as new terms are introduced.
References
- Electricity Act 2018 (Nepal) — Statutory framework for IPPs and NEA
- ERC Tariff Order — Current PPA tariff schedules
- NEA Website — Grid and operational definitions
- Department of Electricity Development — Licensing framework