Determinants of Policy Risks in Renewable Energy Investment in Nepal

Abstract

Nepal sees that renewable energy is essential for both economic growth and climate resilience, but substantial policy-related uncertainty makes it difficult to meet investment goals. This study explores the determinants of policy risks in Nepal’s renewable energy investment, specifically focusing on the political system, government subsidies, and the role of regulatory agencies. Using a survey design, data were collected from 110 renewable energy producers and service providers. The results were analyzed using Structural Equation Modeling (SEM). Relationships between variables were tested using Smart PLS 4. The findings reveal that the political orientation of ruling parties, geopolitical relations, political instability, and current government subsidy structures are significant risk factors for investors. Interestingly, the role of regulatory agencies was found to be at a satisfactory level and did not significantly negatively impact investment risk in the statistical model. To attract private capital, the government must ensure stable political commitments and refine subsidy mechanisms, such as feed-in tariffs and technology-based tax credits. Furthermore, maintaining the autonomy of regulatory bodies is recommended to ensure long-term sector stability and effective policy implementation.