Norway-based renewable energy giant Statkraft has scrapped its plan to develop the 650MW Tamakoshi III hydropower project in Nepal, in which the firm was expected to invest approximately $1.5bn.

The firm has informed the Investment Board of Nepal (IBN) about its decision to discontinue its association with the project, which was designed to export power to India.

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If developed, the hydro project would have supplied power to India in order to support its rising power demands.

Tamakoshi III was planned to be constructed in the Dolakha district, about 100km northeast of Kathmandu and close to the border with Tibet.

"Statkraft has a long-term commitment to Nepal as the license agreement for the 60MW Khimti hydropower plant runs until 2045."

The firm has arrived at the decision to terminate the project following a detailed assessment of all its aspects, including commercial, technical and regulatory factors.

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Increased technical hurdles for foreign investments and a fragile political situation in Nepal have led to a non-conducive environment for the project to be carried out.

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Statkraft vice-president and country director Sandip Shah said: "These factors include a lack of viable power offtake option, lower electricity price forecasts, insufficient transmission capacity for power evacuation and absence of necessary policies and regulatory framework for operationalising power sales.

Investment Board Nepal (IBN) external affairs chief Ghanashyam Ojha was cited by Reuters as saying that the decision has been prompted by Statkraft’s uncertainty on exporting power to India since cross-border transmission lines are still not in place.

The energy firm, however, is still interested in other projects in Nepal provided attractive investment returns and stable long-term conditions for operations are available in the country.

Statkraft senior vice-president Tima Utne Iyer said: "As majority owner of Himal Power (HPL), Statkraft has a long-term commitment to Nepal as the license agreement for the 60MW Khimti hydropower plant runs until 2045.

"Our decision is purely linked to the Tamakoshi-3 Project and does not influence our activities in South Asia."