Every winter, a familiar thing happens on Nepali investor forums. A run-of-river hydropower company posts its second-quarter results; the numbers look terrible next to the quarter before, and someone declares the company is in trouble. Revenue down. Profit down. Earnings per share collapsed. Sell.
Most of the time, nothing is wrong with the company. What you are looking at is hydropower seasonality earnings doing exactly what they always do. The river ran low because it was winter; the plant generated less power, so it sold less power. That is the entire story. The panic is the recurring mistake, and understanding the cycle turns that panic into an opportunity instead of a trap.
This piece is about why a single quarter tells you almost nothing about a hydro stock, why winter quarters look ugly by design, and how to read the numbers so the seasonal swing stops fooling you in both directions. We are not going to re-explain how to value the stock from scratch or compare project types here; that lives in our guides on valuing a hydropower stock on NEPSE and run-of-river versus reservoir projects. This is the seasonality layer that sits on top of both.
The water comes and goes, and so does the money
Start with the physical fact that drives everything else. Nepal’s rivers are fed by the monsoon. Roughly 80% of the country’s annual rainfall falls during the monsoon months, broadly June to September, which is why river discharge peaks through the Nepali months of Asar, Shrawan, Bhadra, and into Ashoj and Kartik. By the time the dry season sets in over Poush, Magh, Falgun, and Chaitra, the same rivers have shrunk to a fraction of their monsoon flow.
A run-of-river plant has no dam to store water. It generates from whatever the river is carrying past the intake at that moment. So when the river is full, the plant runs at or near full capacity. When the river is low, the plant runs on whatever trickle is available. There is no buffer.
The output gap this creates is large. During the dry winter months, many run-of-river plants generate only around 20% to 30% of their installed capacity. The Kathmandu Post, Urja Khabar, and others have reported the same pattern across the fleet for years: peak generation in the monsoon, sharp decline through winter, with NEA importing power from India to cover the dry-season shortfall.
A plant earns revenue by selling units of electricity. Fewer units sold means less revenue. That is the first half of the problem. The second half is the price.
The PPA pays two different prices, and that is deliberate
When a hydropower company sells its electricity, it does so under a Power Purchase Agreement (PPA) with the Nepal Electricity Authority (NEA). A PPA is a long-term contract that fixes the price NEA pays per unit. For most run-of-river projects, that price is not a single number. It has a wet-season rate and a dry-season rate, and the dry-season rate is much higher.
Under the standard NEA framework for run-of-river projects, the dry season is defined as the four months of Poush to Chaitra, and the wet season covers the remaining eight months, Baisakh to Mangsir. NEA has bought power from these projects at roughly NPR 4.80 per unit in the wet season and NPR 8.40 per unit in the dry season, with a built-in escalation of about 3% per year applied a fixed number of times.
Read that carefully, because it matters for how you interpret the earnings. The higher winter price is NEA’s attempt to compensate developers for producing scarce, valuable dry-season power. It softens the seasonal revenue swing. It does not erase it. A plant generating 25% of its capacity at a price 75% higher still earns far less than the same plant generating near full capacity in the monsoon. The price premium partially cushions the volume collapse. The net effect is that winter revenue is lower, just not as catastrophically lower as the raw generation numbers alone would suggest.
This is the single most misread feature of hydropower seasonality earnings. People who only look at units generated overstate the winter damage. People who forget the seasonal pricing entirely cannot reconcile the revenue line. You need both pieces.
Why quarterly EPS for a hydro stock is close to meaningless
Now connect this to the financial statements. NEPSE-listed companies report quarterly. The Nepali fiscal year runs mid-July to mid-July, and the four quarters fall roughly like this:
- Q1 (Shrawan to Ashoj): tail of the monsoon, strong flow. High generation.
- Q2 (Kartik to Poush): flow falling fast; dry season pricing kicks in late. Generation dropping.
- Q3 (Magh to Chaitra): deep dry season. Lowest generation of the year.
- Q4 (Baisakh to Asar): pre-monsoon, flow recovering, then early monsoon at the very end.
A run-of-river company’s revenue and profit will track that pattern almost mechanically. The first quarter looks strong. The third quarter is the weakest. If you put Q1 and Q3 side by side, the drop in earnings per share (the company’s profit divided by its shares, EPS) can look alarming, and it is completely normal.
Here is the trap stated plainly. Quarter-on-quarter comparison for a hydro stock measures the season, not the company. When you see a hydro firm’s Q3 EPS fall sharply below its Q1 EPS, you have learned that winter is drier than the monsoon. You already knew that. You have learned nothing about whether the business is healthy, whether the plant is running well, or whether management is doing its job.
This is the opposite of how you read a commercial bank, where quarter-on-quarter trends in deposits, loans, and bad loans carry real information. (If you want the contrast, see how to read a bank’s quarterly report.) A bank does not have a monsoon. A run-of-river plant lives and dies by it.
A worked example, because the numbers make it obvious
Imagine a small run-of-river plant. To keep this clean, the figures below are an illustration, not a real company.
In the strong first quarter, it generates, say, 30 million units and sells them around the wet-season price. Call the quarterly revenue roughly NPR 14 crore. Costs for a hydro plant are mostly fixed: interest on the construction loan, depreciation, a small operating team. Say fixed costs run about NPR 7 crore a quarter. That leaves roughly NPR 7 crore of operating profit. The quarter looks excellent.
Now the deep dry-season third quarter. The same plant generates maybe 9 million units, less than a third of the monsoon figure. It sells them at the higher dry-season price, which helps, lifting revenue to around NPR 7 crore rather than the NPR 4 crore the volume alone would imply. But the fixed costs do not shrink with the river. They are still about NPR 7 crore. Operating profit for the quarter is close to zero, possibly slightly negative once financing is fully loaded.
Look at what just happened. Operating profit went from NPR 7 crore to roughly nothing across two quarters of the same year, in a perfectly healthy plant, purely because of the season. An investor reading the Q3 statement in isolation sees a company that “stopped making money.” An investor who understands the cycle sees a plant that did exactly what the hydrology dictated, propped up at the margin by the dry-season tariff, on track for a normal full year.
The fixed-cost structure is the amplifier. Because most hydro costs do not move with output, the seasonal swing in revenue lands almost entirely on the profit line. That is why the EPS chart of a run-of-river stock looks like a sawtooth, year after year.
Reservoir and peaking projects flatten the curve
Not every hydro project is this volatile, and this is where the distinction between project types earns its keep. A reservoir project stores monsoon water behind a dam and releases it through the dry months, so it can keep generating when run-of-river plants are starving. A peaking run-of-river (PRoR) project has a smaller pondage that stores a few hours of water, letting it concentrate generation during high-demand hours and ride through short dry spells better than a pure run-of-river plant.
The practical consequence for earnings is that a reservoir or PRoR project has a flatter seasonal profile. Its winter quarter still softens, but it does not collapse the way a pure run-of-river quarter does, because it is selling stored monsoon water at the premium dry-season price. That combination, stored volume sold at the higher winter rate, is genuinely valuable, and it is part of why these projects can command different valuations. We unpack the engineering and the trade-offs in run-of-river versus reservoir.
The takeaway for reading earnings is simple: Before you judge a hydro company’s quarter, know what kind of plant you own. The same winter quarter means very different things for a pure run-of-river plant and a reservoir project. Comparing the Q3 of one against the Q3 of the other, without adjusting for project type, is comparing two different machines.
How to actually read the numbers without being fooled
So if quarter-on-quarter is a trap, what should you do instead? Three habits.
First, compare same quarter year-on-year. The right question is never “how does this Q3 compare to last Q1.” It is “how does this Q3 compare to the same Q3 last year and the Q3 before that?” That comparison holds the season constant, so any change you see is real. If this winter’s Q3 generation and revenue are up on last winter’s Q3, the business is genuinely improving, perhaps from a good monsoon recharge, better plant availability, or a tariff escalation. If it is down on a comparable-rainfall year, that is worth investigating: machine downtime, a transmission constraint, a dispute with NEA over payment.
Second, anchor on the full year. A hydro plant’s economics only make sense across all four quarters together. Annual generation, annual revenue, annual profit, and the full-year EPS are the numbers that describe the business. The single most useful seasonal habit is to mentally annualize: a strong monsoon quarter is not the run rate, and a weak winter quarter is not the run rate either. The truth is the blend.
Third, watch what is structural versus seasonal. A falling winter quarter is seasonal. A rising debt-servicing burden, a plant whose generation is declining across comparable years, a receivable from NEA that keeps growing because payments are delayed, those are structural, and they matter. Seasonality is noise you can predict. Structural decline is the signal you are actually hunting for. Do not let the loud, predictable noise drown out the quiet, important signal.
The verdict
Judge a hydropower stock on its full-year and same-quarter-last-year numbers. Never on a single quarter. A run-of-river plant is built to earn most of its money in the monsoon and very little in the dry months, and the PPA’s higher winter tariff cushions but does not cancel that swing. A weak winter quarter is the plant working as designed, not the company failing. A blockbuster monsoon quarter is the plant working as designed, too, not a permanent step-up in earnings power. Extrapolating either one is the same error in opposite directions.
The reason this matters for your returns is that the market keeps making the mistake out loud. Every winter, predictable dry-season weakness gets read as bad news, and hydro stocks can soften on results that contain no new information at all. For an investor who understands the cycle, that recurring panic is less a risk than a gift. The people selling a healthy plant in Magh because its Q3 looked weak are handing the cycle to whoever is on the other side of the trade. Decide which one you want to be.
This is analysis, not financial advice.
