Hydropower: The Backbone of Nepal's Economic Growth

Nepal’s national electricity transmission system has achieved significant milestones, with a total connected capacity of 3,500 megawatts and over 7,000 circuit kilometers of transmission lines across the country. Approximately 200 substations and 208,000 circuit kilometers of distribution lines have been established. As a result, 99% of the population now has access to electricity.

The Nepal Electricity Authority (NEA) has signed agreements to purchase over 10,300 megawatts of electricity from various projects. Currently, projects with a total capacity of 7,000 megawatts are under construction, and the country is projected to reach a total installed capacity of 10,000 megawatts within the next five years. Additionally, a process is underway to procure 960 megawatts from solar projects. Once power purchase agreements (PPAs) are finalized, another 11,000 to 12,000 megawatts of capacity will soon enter the construction phase.

Growing Domestic Demand and Export Potential

Currently, domestic electricity consumption in Nepal stands at around 2,200 megawatts, with increasing demand due to the growing use of electric vehicles, electric stoves, and air conditioning. Nepal has already begun exporting up to 1,000 megawatts of electricity to India during the monsoon season and has initiated a symbolic export of 40 megawatts to Bangladesh, which does not yet have a direct electricity grid connection with Nepal. The NEA has been exporting electricity to India since November 2021 and to Bangladesh since November 2024.

For the first time, the NEA became a net electricity exporter last year, earning NPR 1.3 billion from electricity sales. As of the current fiscal year, the NEA has earned NPR 12.71 billion in electricity exports, further solidifying the country's position in the international electricity market.

Historical Challenges and Current Progress

Nepal once faced up to 18 hours of load shedding, and the idea of exporting electricity to Bangladesh seemed far-fetched. Similarly, there were doubts about India’s willingness to purchase Nepalese electricity. However, after overcoming long-standing electricity shortages, Nepal now exports power not only to India but also to Bangladesh via the Indian grid.

Despite these successes, Nepal still faces the challenge of importing electricity during the winter months due to lower domestic generation. However, within the next 2-3 years, Nepal hopes to stop importing electricity during the winter and will focus on expanding its electricity export capacity. Agreements have been signed to sell 10,000 megawatts of electricity to India over the next 10 years and 5,000 megawatts to Bangladesh over the next five years. Additionally, preparations are underway for electricity trade with China, which is expected to further boost Nepal's electricity export capabilities in the near future.

Transmission Lines and Infrastructure Development

Nepal has made remarkable strides in expanding its transmission network. What once was limited to 132 kV transmission lines is now complemented by 220 kV and 400 kV lines. The transmission system has faced several challenges, including local opposition, land acquisition issues, the complexity of obtaining permits for forest land usage, and difficult geographical conditions. Despite these challenges, substantial progress has been made in building transmission lines, with major cities divided into 11 clusters and a comprehensive master plan for future supply needs.

Nepal has also made notable progress in cross-border electricity infrastructure, with the 400 kV Dhalkebar-Muzaffarpur transmission line already operational and additional 400 kV lines under construction, including the Butwal-Gorakhpur line. Plans for further expansion, including a dedicated transmission line to Bangladesh and cross-border connections with China, are currently under study.

The Role of Hydropower in Nepal’s Economy

Hydropower is pivotal to Nepal’s economy, not only for meeting domestic demand but also for its potential as a major export commodity. The sector contributes significantly to foreign exchange earnings and job creation. With projects like the Upper Tamakoshi hydropower plant, which has been one of the largest contributors to domestic supply, Nepal is well on its way to becoming an energy exporter.

The private sector has also made substantial investments in hydropower, further driving economic growth. When these projects reach the construction phase, they create thousands of jobs, stimulate industries such as cement production, and positively impact the overall economy. The success of hydropower projects is critical not only for energy generation but also for boosting Nepal’s industrial and agricultural sectors.

Electricity Consumption and Economic Benefits

Electricity has become an indispensable part of daily life in Nepal, with widespread use in transportation, communication, heating, and household appliances. It has become a crucial service for nearly all sectors, including transportation, internet, computers, television, mobile phones, and air conditioning. The increase in electricity consumption in the country is directly linked to economic growth, particularly in the industrial and agricultural sectors.

The rise in electricity consumption has been driven by innovations such as electric stoves and electric vehicles. The use of electric stoves, which are more affordable than LPG gas, has decreased the reliance on expensive imported gas and, by extension, reduced foreign currency outflows. Similarly, the growing adoption of electric vehicles has decreased the dependence on petroleum products, further benefiting Nepal’s balance of trade.

Looking Ahead: Opportunities and Challenges

As Nepal’s electricity production continues to increase, there is significant potential for the country to become a major exporter of clean energy, especially in light of global climate change concerns. Nepal’s hydropower projects offer a sustainable and environmentally friendly energy solution, which is in high demand worldwide.

However, there are still challenges to overcome, including land acquisition, environmental concerns, and bureaucratic hurdles that delay project approvals. The government must take a proactive role in facilitating the development of hydropower projects by ensuring that land acquisition and permit processes are streamlined. Additionally, the government must avoid the temptation to provide free electricity, as this undermines the potential for investment in future projects.

Hydropower is, without a doubt, the backbone of Nepal’s economy. With continued investment, infrastructure development, and strategic policies, Nepal can harness its abundant hydropower resources to generate significant foreign exchange and drive sustainable economic growth. The energy sector, particularly hydropower, is poised to play a central role in Nepal’s economic future, creating jobs, reducing foreign dependency, and fostering regional cooperation with neighboring countries. The government and private sector must work together to overcome the existing barriers and ensure that Nepal fully realizes its hydropower potential.