Back to all articles

The Rise of Hydropower Stocks in Nepal: Bubble or Real Growth?

Hydropower stocks have surged in Nepal, attracting thousands of investors. But is this rise a sign of sustainable growth or a market bubble waiting to burst? This in-depth analysis explores the fundamentals, risks, and opportunities in Nepal’s hydropower sector.

•
Nepalytix
The Rise of Hydropower Stocks in Nepal: Bubble or Real Growth?

Introduction

Nepal, blessed with abundant water resources and rugged topography, has long been considered a goldmine for hydropower potential. In recent years, hydropower companies have dominated the Nepal Stock Exchange (NEPSE), with IPOs getting oversubscribed multiple times and their market prices soaring within days of listing.

But as with any rapid market trend, a critical question emerges — Is the surge in hydropower stocks a reflection of true value and long-term growth, or are we witnessing a speculative bubble?

In this article, we’ll dive deep into:

  • The rise of hydropower stocks in NEPSE

  • Key industry drivers

  • Risks and red flags

  • Financial and technical analysis

  • What investors should consider

1. Hydropower in Nepal: An Overview

Nepal has an estimated hydropower potential of over 83,000 MW, of which around 40,000 MW is technically and economically viable. However, as of mid-2025, the installed capacity is just above 2,800 MW.

Why is Hydropower so Important to Nepal?

  • It reduces reliance on imported fossil fuels

  • It supports rural electrification and industrial growth

  • It opens doors for electricity exports to India and Bangladesh

This untapped potential has become a beacon for investors — both domestic and foreign — seeking long-term returns.

2. The Rise of Hydropower Stocks in NEPSE

Over the past 3–4 years, hydropower companies have flooded the IPO scene in Nepal:

  • Companies like Upper Tamakoshi, NRN Infrastructure, Mailung Khola Jalvidhyut, and Ruru Jalvidhyut have raised millions through the public.

  • IPOs are often oversubscribed 100+ times, showing the massive public interest.

  • Some companies have seen their stock prices double or triple within a few weeks of listing.

This excitement has pushed the Hydropower Sub-Index on NEPSE to new highs, making it one of the most volatile yet sought-after sectors.

3. What’s Driving the Boom?

a. Government Support & Licensing

  • Easy licensing process and policy incentives

  • Priority to hydropower in national energy strategy

  • Investment-friendly policies for electricity export

b. Attractive IPO Allotment for Retail Investors

  • Most IPOs offer minimum guaranteed lots to small investors

  • Low risk, high short-term returns

c. Speculative Retail Investment Culture

  • Many investors enter the market with short-term profit motives

  • Herd behavior often leads to inflated pricing

d. Positive Earnings from Operational Projects

  • Companies like Upper Tamakoshi and Butwal Power Company have started generating stable cash flows

  • Dividend payouts have begun in select firms

4. Is It a Bubble? Warning Signs to Watch

Despite the optimism, there are growing concerns:

a. Overvaluation

  • Many hydropower stocks trade at high P/E ratios without corresponding earnings

  • Projects under construction are valued as if already profitable

b. Delay in Project Completion

  • Construction delays due to land acquisition, funding, or monsoon damage

  • Time lag between IPO and revenue generation (often 4–6 years)

c. Cash Flow Issues

  • Non-operational companies may have zero income for several years

  • High debt-to-equity ratios in early-stage projects

d. Dependence on NEA (Nepal Electricity Authority)

  • Single buyer market: NEA’s delayed payments and limited transmission capacity affect profitability

5. Real Growth Potential: The Other Side

Let’s not dismiss the sector entirely. There are solid fundamentals for long-term growth:

a. Growing Domestic Demand

Nepal’s annual electricity demand is growing at 8–10%, boosted by:

  • Electrification of rural areas

  • Growth in manufacturing

  • EV and electric stove adoption

b. Regional Export Agreements

  • Power export deal signed with India for up to 10,000 MW over 10 years

  • Grid interconnections with Bangladesh are underway

c. Sustainable and Renewable Focus

  • Global and local policies favor clean energy

  • Hydropower is a key component of Nepal’s green future

6. How to Evaluate a Hydropower Stock

If you’re considering investing, here are key metrics:

✅ Project Stage

  • Under construction, testing, or operational?

✅ Installed Capacity

  • Projects with 10+ MW often have better economies of scale

✅ PPA (Power Purchase Agreement)

  • Is there a signed agreement with NEA or an export buyer?

✅ Debt Levels

  • Is the company too reliant on loans?

✅ Dividend History

  • Companies like Butwal Power have proven dividend track records

✅ Management Experience

  • Does the leadership have a record of timely project execution?

7. Tips for Investors

  • Don’t follow the hype: Avoid investing just because the stock price is rising.

  • Read the prospectus: Especially for IPOs, understand the revenue model and risk disclosures.

  • Diversify: Don't put all your funds in hydropower alone.

  • Track progress: Follow project updates and NEA payment cycles.

8. Final Thoughts: Bubble or Real Growth?

Both. The sector has genuine potential backed by Nepal’s geography, government policies, and energy demand. However, not every hydropower stock reflects true value.

Many early-stage companies are currently overhyped and may face operational delays. But seasoned players and those nearing production have better fundamentals and long-term prospects.

Conclusion

Hydropower is the backbone of Nepal’s energy future and a potential goldmine for long-term investors. But just like a raging river, the hydropower sector can be wild and unpredictable. Before diving in, equip yourself with the right knowledge, patience, and strategy.

If you invest wisely, you won’t just ride the wave—you’ll help power Nepal’s future.