Nepal’s Energy Sector Development: A Vision for Prosperity and Regional Cooperation

Nepal is rich in natural resources, and harnessing these resources effectively can lead to significant economic growth. The country boasts abundant natural resources like soil, water, air, timber, oil, solar energy, and wind energy. Among these, hydropower has emerged as one of the most crucial resources in Nepal’s energy sector.

Nepal’s Hydropower Potential

Nepal has thousands of rivers and streams, which present substantial potential for hydropower generation. The government has recognized the importance of hydropower in the country’s energy sector and has placed it as a high priority. As of 2025, Nepal's hydropower generation capacity has reached approximately 3,500 MW, a substantial improvement from the country’s first 500-kilowatt project, the Pharping Hydroelectric Plant, established in 1962. Despite the progress, the development of hydropower in Nepal has not occurred at the speed necessary to meet the growing demand.

Government Initiatives and Private Sector Involvement

In the last decade, Nepal has made significant strides in its energy sector, overcoming challenges like daily load shedding and harnessing natural energy. With the support of the private sector, Nepal has made substantial improvements in hydropower generation, with over 10,000 MW of power generation projects having signed Power Purchase Agreements (PPA). The government has been actively working to ensure financial management in the remaining projects and has streamlined the process of obtaining permits and executing the projects.

Nepal's Energy Minister, since assuming office in 2025, has taken several steps to address regulatory and legal barriers hindering hydropower development, including revising laws and attracting more private investments. One such initiative includes guaranteeing shares of hydropower projects for the marginalized and low-income communities, helping them benefit from the hydropower boom.

The Role of Private Sector and National Energy Plans

The private sector’s involvement in Nepal’s energy sector is vital for its growth. In the early 2000s, Nepal’s energy policy took a significant turn with the implementation of open market reforms, enabling the private sector to engage in hydropower development. The government’s economic liberalization policy further encouraged the private sector’s role, and today, nearly two-thirds of the energy production in Nepal comes from private investments. This shift has helped the country move towards self-sufficiency in electricity generation.

One of the major steps in fostering private sector engagement is the expansion of transmission lines. The government has signed agreements with private companies to develop major transmission projects, such as the Tamor-Dhungesangu 220 kV transmission line. These projects are expected to significantly enhance Nepal’s transmission infrastructure and support electricity export to neighboring countries.

The Government’s Ambitious Energy Goals

Currently, Nepal’s installed electricity capacity stands at 3,600 MW, with a peak demand of over 2,000 MW. However, this is still not sufficient to meet the country’s growing energy needs. The government has set an ambitious target to generate 28,500 MW of electricity by 2035, with 13,500 MW earmarked for domestic consumption and the remaining 15,000 MW for export to countries like India and Bangladesh.

To achieve this, the government plans to initiate large-scale projects like the Pancheswar, Budhi Gandaki, and Upper Arun Hydroelectric Projects, which will require an estimated investment of $46 billion over the next decade. In addition, Nepal is pursuing the development of the Karnali Chisapani Hydroelectric Project with the participation of neighboring countries such as India, China, Bangladesh, and Bhutan.

Regional Cooperation and International Collaboration

Nepal has also made significant strides in regional cooperation, particularly with India. Recent discussions between Nepal and India’s energy ministers have led to the agreement on the construction of two major transmission lines—the Inaruwa-New Purnia and Doda-Dohdhara-Bareilly transmission lines. These lines are expected to facilitate the smooth export of Nepal’s surplus electricity to neighboring countries, ensuring energy security and economic integration within the region.

Additionally, Nepal has been engaged in diplomatic efforts to strengthen ties with Bangladesh regarding electricity exports. This collaboration, backed by the respective ambassadors of Nepal and Bangladesh, is a significant achievement for Nepal’s energy sector. The successful export of electricity to Bangladesh serves as a testament to the government’s efforts in improving the energy sector’s infrastructure and international ties.

Moving Forward: Overcoming Challenges

Despite the progress, Nepal’s energy sector still faces several challenges, including financing, project delays, and political hurdles. However, the government remains committed to overcoming these barriers. With support from international institutions such as the World Bank and the Asian Development Bank, Nepal is actively working on streamlining project implementation, revising policies, and attracting investments in energy development.

Furthermore, the government has made efforts to resolve long-standing issues, such as the transmission line problems in the Sindhupalchok region, which had caused delays in projects like the Middle Bhotekoshi Hydroelectric Project. Resolving these issues will help accelerate the development of Nepal's hydropower potential.

Nepal’s energy sector is undergoing significant transformation, with an increasing emphasis on hydropower as a cornerstone for economic growth. The government’s vision to make Nepal energy self-sufficient and a major electricity exporter is on track, and the country’s vast hydropower potential is gradually being realized. With continued focus on private sector engagement, regional cooperation, and strategic investments in infrastructure, Nepal’s energy sector is poised to be a key driver of the country’s economic prosperity.

Nepal’s energy sector has seen considerable development in recent years, especially in hydropower generation, marking a turning point in the country's energy independence. The government’s commitment to addressing infrastructural challenges, regulatory barriers, and increasing private sector involvement bodes well for the future. Furthermore, the emphasis on regional cooperation with countries like India and Bangladesh will foster energy trade, which is crucial for economic growth. However, achieving the government’s ambitious goals for 2035 will require careful planning, substantial investments, and continued international collaboration.