Financial Analysis of Hydropower Project Development in Nepal using FINPLAN Approach

This work was supported by the Climate Compatible Growth Programme (#CCG) of the UK's Foreign Development and Commonwealth Office (FCDO). The views expressed in this paper do not necessarily reflect the UK government's official policies.

A 100 MW Hydropower Plant is planned for development an investment cost of $100 million (NPR 14,000 million). The financial analysis of the project is carried out using FINPLAN. The analysis of cash inflows and outflows of NGL scenario e. with no concession loan  indicates a positive Net Present Value (NPV) (NPR 2,956 million) and Internal Rate of Return (IRR )of 12.8%, which is higher than the WACC of 8%, indicating the project's feasibility at a debt-equity ratio of 0.7. The project’s NPV and IRR are sensitive to changes in electricity prices, generation capacity, and construction period. The analysis shows that the project remains profitable even up to a 20% reduction in electricity price below the tariff rate (NPR 6.6/kWh), indicating the tariff resilience of the project. The scenario analysis shows that even though there is no significant increment in IRR, the WACC decreased from 7.5% in the NGL scenario i.e. with no concession loan to 5.1% in the GL40_2.5% scenario, increasing the bankability of the project.  Also, the LCOE decreased from NPR 5.87/kWh in the NGL scenario to 4.67 kWh in the GL40_2.5% scenario, i.e., with a high concession loan.

The results show that blended and concessional finance can substantially improve bankability by reducing WACC. The scenarios with lower interest rates and long-term loans yield higher IRR and positive NPV, implying the need of soft/concession loans available via export credit. Access to blended financing is thus crucial for project bankability and attracting long-term investment.  At the same time, future financing frameworks need to account for climate resilience, given the vulnerability of seasonal hydropower generation to changing river flows and extreme weather events.