Even with vast water resources and hydropower beginning in 1911, Nepal has only tapped into a fraction of its capacity. Harnessing only 0.7 per cent of its potential, the nation leaves 60 per cent of its population without reliable access to electricity.
While hydropower accounts for 96.2 per cent of the country’s installed capacity, there is still a 32 per cent import of electricity from India, meeting only 68 per cent of domestic demand during the dry season.
The seasonal imbalance, one of the main challenges, leads to excess electricity production during the rainy season but shortages during the dry months. To meet growing energy demands, hydropower development must be accelerated, according to a 2021 report from the Nepal Rastra Bank.
Governance challenges in the sector
The political interference frequently impacts the Nepal Electricity Authority (NEA), the national utility and sole buyer of electricity, delaying necessary reforms. Additionally, political instability, bureaucratic inefficiencies, and hiked electricity pricing continue hindering public and private investments, alongside infrastructural challenges like insufficient roads and transmission lines.
Developers have raised concerns about delays in permits and approvals, compounded by pricing structures and power purchase agreements influenced by non-economic factors.
Moreover, fossil fuel subsidies limit the resources available for renewable energy projects. Strengthening the autonomy of the Electricity Regulatory Commission, unbundling generation and distribution processes, and fostering competition are necessary steps to improve the governance framework.
Ambitious goals for the future
Despite these challenges, Nepal has set ambitious goals for its hydropower industry. Kul Man Ghising, managing director of the NEA, announced that Nepal aims to generate 28,000 MW of electricity by 2035.
Nepal has already started exporting surplus electricity to India, a major step toward economic growth. In the fiscal year 2023/24, it earned Rs 16.93 billion from hydroelectricity exports to India. Moreover, it has exported electricity worth Rs 13.4 billion to India in the first five months of the current fiscal year 2024/25.
According to a report by Integrated Research and Action for Development, Nepal could earn USD 2.3 billion annually by 2030 and USD 7.8 billion annually by 2045 if it sells electricity to India by fully harnessing its hydropower potential.
Nepal has already started exporting surplus electricity to India, a major step toward economic growth. In the fiscal year 2023/24, it earned nearly INR 15 billion from hydroelectricity exports to India. However, this will require substantial investments—USD 19.5 billion by 2030 and USD 16.7 billion between 2031 and 2045.
Diversification and energy balance
Beyond exporting electricity, Nepal must diversify its energy portfolio to reduce its dependence on hydropower during the dry seasons. Developing pumped-storage hydropower projects and piloting grid-scale battery systems are essential to achieving this balance.
Another viable strategy is energy trade through “power banking” agreements with India, where surplus electricity is exported during the wet season and imported during the dry season. Solar power can support this attempt at times when the water flow reduces.
Environmental concerns
Unfortunately, development projects come with environmental costs. Hydropower projects have disrupted river ecosystems, with many dams blocking essential water flow and hampering fish migration routes critical for breeding.
According to a SINTEF report, numerous hydropower projects fail to release the mandated 10 per cent water flow during the dry season, leading to the drying of riverbeds downstream. Likewise, the International Union for Conservation of Nature (IUCN) has enlisted 21 of Nepal’s 230 freshwater fish species as endangered.
Experts like Rakesh Yadav are concerned about the decline of aquatic life, highlighting the fact that rivers are more than just a source of energy; they are a component of a wider ecosystem.
Despite regulations requiring fish ladders to allow species to navigate around dams, a SINTEF study found that none of the ladders were designed for the specific migratory fish in these rivers, and only one had been monitored. Atle Harby from SINTEF has also stressed the need for a master plan that balances power generation with environmental and societal needs.
However, NEA officials have prioritised economic gains over environmental concerns, causing energy production to overshadow ecological consequences.
Climate change threatens hydropower
Besides environmental impacts, climate change-induced extreme weather events threaten the hydropower sector. It is impacting the national grid and the local energy supply, forcing more imports from India to make up the difference. Himalayan glaciers that feed the rivers essential for power generation are shrinking, reducing water flow, and increasing operational expenses.
The record-breaking rains on 27th and 28th September 2024 caused significant damage to 16 hydropower projects across the country. According to the Independent Power Producers Association of Nepal (IPPAN), the floods affected powerhouses, transmission lines, and other structures, halting production in several key projects.
Four people went missing when landslides struck the NEA-developed 456-megawatt Upper Tamakoshi Project. Besides, the disruption in production resulted in a larger power supply cut that led the NEA to import 300 megawatts of electricity from India.
The record-breaking rains on 27th and 28th September 2024 caused significant damage to 16 hydropower projects across the country. Flooding also submerged the powerhouse of the 22-megawatt Bagamati Small Hydropower Project, whereas the 86-megawatt Solu Dudhkoshi Hydropower Project and the Hewakhola Hydropower Project suffered recurring damage due to repeated floods. Similarly, the Maikhola Cascade Hydropower Project and several smaller projects faced significant losses.
The frequency of such climate-induced disasters calls for integrating climate resilience into energy infrastructure, retrofitting existing plants, and designing new climate-smart projects. Improved flood risk and sediment management, alongside leveraging digital technologies, is a must for building a more resilient energy grid.
Is a balanced future possible?
If it only develops 20% of its hydropower capacity, Nepal could increase its GDP by 87% and position itself as a major electricity exporter in South Asia. The nation does have the potential to transform its energy landscape and drive economic growth. If it only develops 20 per cent of its hydropower capacity, Nepal could increase its GDP by 87 per cent and position itself as a major electricity exporter in South Asia.
Low operating costs, zero emissions, and long-term efficiency are some of the main benefits of hydropower, which makes it a desirable energy source. In rural Nepal, small hydropower systems have grown in popularity, especially in isolated areas where micro-hydro projects offer a much-needed renewable energy source.
But to achieve long-term sustainability, stakeholders, the public, and policymakers must address governance issues and make investments in climate resilience. A collective commitment to balance energy production with ecological preservation is imperative for a sustainable and prosperous energy future.
Sudipa Mahato is a junior editor with Nepal Connect.
