Nepal is geographically diverse. From Solar to the wind, it has high potential of Renewable Energy. However, the country has yet to efficiently utilize these resources to gain benefits of inexhaustible energy supply. Nepal uses a large chunk of its national income to import fossil fuels. This traditional source of energy has only increased the effect of climate change while itself remaining volatile in pricing due to the political condition of the country.
The energy mix in the national grid is currently composed mainly of hydro, thermal, and fossil fuel. By end of 2014, the total installed capacity of all electricity-generating plants in Nepal was about 787 MW, out of which 93% was generated through large and isolated hydropower projects by the Nepal Electricity Authority (NEA) and independent power producers (IPPs), and around 6.5% was generated from thermal power plants (NEA, 2015)
Given the relatively small and under-developed economic base of the country, Nepal has a reasonably diversified financial sector, as demonstrated by the number and variety of institutions that play an active role in the sector (MoF, 2011). The banks have an interest in gaining more resources and creditworthiness and are generally leaning towards grid-based projects that are proven to be more commercially viable than remote off-grid projects in rural areas (SREP, 2013). Many financial institutions (FIs) do not readily initiate RE loan portfolios as they consider the sector highly risky. The central bank - Nepal Rastra Bank (NRB), in its Unified Directives of 2013, stipulates that loans and advances by FIs, up to USD600/beneficiary household disbursed to RE will be counted as deprived sector lending. A study carried out by Winrock International estimates about 9 commercial banks, 2 development banks, 6 microfinance development banks and approximately 380 locally based financial institutions 15 were involved in the financing of RE systems (including hydropower) with a portfolio of about USD 11 million (Winrock International, 2014).
Some commercial banks also provide wholesale lending to local micro finance institutions (MFIs) or locally based cooperatives, often in turn supported by government, I/NGOs or development partner funds. While SHS, ICS and biogas are the main RE technologies considered, solar water pumping is also added within this existing portfolio. While banks typically on-lend to cooperatives at interest rates of 11-12% before, within these projects, interest rate could drop to 7-8%. (AEPC, 2016)
While there are mechanism like the CREF (Central Renewable Energy Fund) as financial intermediation program under NRREP (National Rular and Renewable Energy Programme) initiated by Alternative Energy Promotion Center. It is still a long journey before the nation adapt to the alternative energy throughout the country and clean energy becomes the ultimate choice for Financial Institution where they want their money flowing.