Hydropower Development in Nepal: Achievements and Opportunities

Lekha Nath Pandey1 and Pawan Kumar Patodiya1

Singhania University, Rajasthan, India2
1

Corresponding Author: Lekh Nath Pandey, email: [email protected]

Abstract
This article has assessed the progress and opportunities within hydropower sector of Nepal. It has emphasized
its pivotal role in shaping the economic future the country. Hydropower has been integral to development of
Nepal, with its journey beginning over a century ago. Despite challenges such as political instability, limited
infrastructure, and financing difficulties, significant achievements have been made. The study highlights
opportunities for further growth, particularly in large-scale and multi-purpose hydropower projects. The
article has explored the roles of government, the private sector, and international cooperation in driving
sustainable hydropower development. It has given some recommendations to overcome challenges and
maximize future opportunities. Emphasizing environmental and social considerations, the study suggests
that hydropower will continue to be central to the economic ambitions and its transition to a greener, more
resilient energy future of Nepal.
Keywords: hydropower development, Nepal energy sector, economic growth, sustainable energy,
infrastructure challenges, renewable energy opportunities

Introduction The purpose of this article is to assess the

achievements made in Nepali hydropower sector
Nepal is known for its diverse topography and
mountainous terrain. It one of the richest countries in and to explore the opportunities that lie ahead.
terms of hydropower potential. Its steep slopes and Examining both the progress and challenges in
abundant water resources create ideal conditions for this vital industry, the study to highlight its role in
generating hydroelectric power. With an estimated shaping future economic landscape of Nepal.
potential of 83,000 megawatts (MW), Nepal has the Hydropower Development in Nepal
capacity to become a major hydropower producer
not only for domestic consumption but also for Achievements and Opportunities
export to neighboring countries (Ghimire et al., Hydropower is one of the most critical sectors
2019). Hydropower development is critical for for development and prosperity. With abundant
economic growth and energy security of Nepal. potential, this sector has been a key contributor
As the country seeks to reduce its dependence on to the economic growth. The aspect hydropower
imported fossil fuels and address frequent power development is the practice of present shares in
shortages. The expansion of the hydropower sector projects to those directly affected by construction.
is essential for industrialization, rural electrification, This inclusive approach ensures that local
and poverty alleviation (Lohani et al., 2023). The communities benefit from the development process,
export of surplus electricity to energy-deficient both economically and socially.
countries like India and Bangladesh could turn
Nepal into a regional energy hub, contributing The journey of Nepalinto harnessing its hydropower
significantly to national revenue. potential began in the early 20th century with the

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Hydropower Development in Nepal: Its Achievements and Opportunities-Lekha Nath Pandey & Assoc. Prof. Dr. Pawan Kumar Patodiya

completion of the Pharping Hydropower Project About 50 MW of multi-fuel, diesel plants are
in 1911, a modest 500-kilowatt (kW) project. It closed, cutting the various projects that are in
marked the beginning of electricity generation breakdown, about 2400 MW of electricity is the
in the country. Although small, this project was daily production today. The maximum daily peak
a significant achievement for the country with load of Nepal Grid is 2000 MW while the off-peak
minimal infrastructure. The early hydropower consumption is 1600 MW. For some time, nearly
projects helped provide power to urban centers 400 MW of electricity is being exported to India
like Kathmandu, supporting basic industrial and every day. The Kulekhani first hydropower project
residential needs (Shrestha,2022). built by damming the Indrasarovar lake is 60 MW
It has been almost 112 years since Nepal’s and its cascade is the second 32 MW and the third
relationship with hydropower projects was 14 MW, which produces a total of 106 MW of
established. Pharping hydropower project is the electricity storage projects. Apart from this, the
first hydropower project in Nepal and this project pre-storage projects have not come into operation.
has secured the golden history and glory of the There are many ambitious projects in Nepal,
second project in Asia (K. C. et al., 2011). From including the 1200 MW Tamor, the 756 MW Tamor,
Taplejung in East Mechi to Darchula in West, 6000 the 6,480 MW Pancheswar hydroelectric project,
MW electricity purchase and sale agreement has which are waiting for the right time, management
been signed and so far, about 2700 MW has been and politicians in Nepal(Lohani et al., 2023).
connected to the electricity grid. The other projects
of 3300 MW are under construction. Nearly 240 For the Budhigandaki hydropower project, which
different projects in Nepal are waiting for the Power has been shown readiness to be implemented for 30
Purchase Agreement (PPA) to start the process of years ago. The plan has not been implemented even
generating 11716 megawatts of electricity after though the funds have been collected in the name of
studying the feasibility (Shrestha,2022). collecting money from the public through fuel sales.
After studying the subject of hydropower to build
Despite the challenges, Nepal has achieved
the Pancheswar hydropower project of 6 thousand
significant progress in expanding its hydropower
480 megawatts(Ghimire et al., 2019). Nepal has
capacity. Major projects such as the Kali Gandaki A
entered a new era of energy self-sufficiency, as
Hydroelectric Plant (144 MW), Upper Tamakoshi
electricity is now regarded as a basic necessity for
Hydropower Project (456 MW), and Middle
all. Hydroelectric power, which is clean, renewable,
Marsyangdi Hydropower Station (70 MW) have
and relatively easy to transport and distribute,
been successfully completed. These projects have
contributed substantially to the country’s total has become a cornerstone of Nepal’s energy
installed hydropower capacity, which now exceeds strategy. Globally, electrical power has emerged
2,000 MW (Ghimire et al., 2019). as an environmentally friendly alternative, driving
industrial, commercial, and domestic growth.
The Upper Tamakoshi Project, completed in 2021,
stands as a milestone in Nepali hydropower journey, Expansion and Challenges
being one of the largest projects funded almost In recent years, Nepal has been ramping up its
entirely through domestic investment. The project hydropower projects with the goal of boosting its
significantly increased Nepal capacity to meet its economy through increased electricity production
growing energy demands and reduce its reliance on and trade. Despite the immense potential, the
imported electricity (Singh et al., 2020). hydropower sector has faced significant challenges,
particularly during the COVID-19 pandemic. The

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 Hydropower Development in Nepal: Its Achievements and Opportunities-Lekha Nath Pandey & Assoc. Prof. Dr. Pawan Kumar Patodiya

global outbreak brought many sectors to a standstill, Government Policies and Initiatives
and hydropower was no exception (Ghimire &
In the decades that followed, Nepal government
Gautam, 2022).
recognized the strategic importance of hydropower
During the pandemic, electricity consumption in and introduced several policies to facilitate
Nepal plummeted due to the shutdown of industries, its development. Key milestones include the
hotels, and factories, leaving many power projects Hydropower Development Policy of 1992, which
operating below capacity. The demand for electricity encouraged private sector participation and foreign
dropped to just 600–800 megawatts, far below the investment in the sector. This policy shift opened the
country’s potential. The oversupply, coupled with doors to independent power producers (IPPs) and
limited consumption, led to financial losses in the saw the rise of numerous public-private partnerships
sector, and ongoing construction projects were also in hydropower development. The establishment
delayed (Butchers et al., 2020).
of the Nepal Electricity Authority (NEA) in 1985
To mitigate the impact, the government introduced further consolidated efforts to enhance power
subsidies for small and medium industries to generation, transmission, and distribution across
encourage greater electricity consumption. It also the country (Rana, 2020).
promoted the use of electric vehicles and appliances,
Despite the government’s commitment to
aiming to reduce dependence on imported fossil
hydropower development, the sector continues to
fuels and increase domestic energy consumption.
face regulatory and policy challenges. Delays in
However, these plans were largely derailed by the
pandemic, as lockdowns and restrictions brought the approval of projects, unclear guidelines, and
the industrial sector to a halt, and demand for frequent policy shifts have caused uncertainty
electricity remained stagnant. among investors and developers. The Electricity
Regulatory Commission (ERC), while working
The Electricity Regulatory Commission (ERC) was
to streamline operations and ensure transparency,
established to streamline and ensure transparency
has faced difficulties in enforcing consistent tariff
in electricity generation, transmission, and
structures and resolving disputes (Rana, 2020).
distribution. In recent years, the ERC has worked
to make the sector more efficient and consumer- Further complicating matters, land acquisition
friendly. Last year, the commission attempted to and issues related to the displacement of local
provide electricity at reduced rates, but progress communities often lead to delays. Regulatory
was stalled due to delays in receiving necessary data reforms are needed to simplify the approval process,
from the Nepal Electricity Authority (NEA). The promote transparency, and ensure that developers
commission has also been addressing disputes over adhere to environmental and social safeguards.
the use of trunk lines and dedicated transmission
lines, aiming to resolve lingering issues from
Contribution of Hydropower to Energy
previous years. Despite efforts to improve
Mix of Nepal
transmission infrastructure, many areas in Nepal, Hydropower plays a pivotal role in Nepali energy
such as the Koshi, Marsyangdi, and Solu corridors, mix, contributing nearly 90% of the country is total
still suffer from insufficient transmission lines, electricity generation. As a clean and renewable
preventing generated electricity from reaching key energy source, hydropower has allowed Nepal
regions. (Shrestha,2022) to reduce its dependence on fossil fuels, moving
toward sustainable energy development (Asia (Zou
et al., 2022). With ongoing projects and future plans,

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Hydropower Development in Nepal: Its Achievements and Opportunities-Lekha Nath Pandey & Assoc. Prof. Dr. Pawan Kumar Patodiya

hydropower is expected to remain the backbone Additionally, the geographic position between two
of energy sector of Nepal, contributing to both large energy markets India and China presents a
domestic consumption and export to neighboring significant advantage. The country could play a
countries. key role as an energy corridor, exporting surplus
electricity to these neighboring countries, both of
Impact on Rural Electrification and Economic
which have rapidly growing energy demands.
Growth
Potential for Cross-Border Hydropower
One of the most profound impacts of hydropower
Cooperation
development has been its contribution to rural
electrification. The extension of electricity to rural Cross-border cooperation in hydropower is a
areas, previously reliant on traditional energy promising avenue for future growth of Nepal.
sources, has brought numerous benefits. Improved Agreements with India, such as the Power Trade
access to electricity has enhanced living standards, Agreement (PTA) signed in 2014, allow Nepal to
supported education, and boosted local economies export electricity to India, providing a steady source
through the establishment of small industries of revenue. Similarly, discussions with Bangladesh
and businesses. Hydropower has also created and China have opened up opportunities for long-
employment opportunities during construction term energy trade. Hydropower development in
and operational phases, thus contributing to the Nepal could thus transform the country into a
national economy (Shrestha, 2022).Moreover, regional energy hub, with the potential to supply
with the increase in power generation capacity, power to energy-deficient regions in South Asia
Nepal has been able to transition from being an (Bishwakarma,2020). It focuses on joint projects
energy-deficient country to one that is exploring and creating a seamless energy grid, Nepal could
opportunities to export electricity. This transition collaborate with its neighbors to develop large
has had a direct impact on economic growth, as hydropower plants with shared benefits. Such
industries, factories, and businesses now have more cooperation would require harmonized policies,
reliable and affordable access to energy. infrastructure investment, and enhanced diplomatic
relations.
Current Status and Future Scope of
Hydropower Development in Nepal Role of Hydropower in Promoting Sustainable
Development and Climate Resilience
The mountainous terrain and fast-flowing rivers
offer immense untapped hydropower potential Hydropower is a renewable, low-carbon energy
in Nepal. Out of an estimated 83,000 MW of source, making it central to the sustainable
theoretical potential, only around 2,000 MW has development agenda. As the world shifts toward
been developed to date. This leaves substantial room greener energy sources to combat climate change,
for growth, particularly in large-scale and multi- Nepal is in a unique position to leverage its
purpose projects that could generate electricity, natural resources for climate resilience. Expanding
support irrigation, and control flooding. With hydropower will help Nepal reduce greenhouse gas
advancements in hydropower technology, even emissions, lessen dependence on imported fossil
fuels, and build a more sustainable and self-reliant
smaller rivers and streams can be harnessed more
energy future Asia (Zou et al., 2022).
efficiently, creating opportunities for decentralized
power generation in remote areas (Pakhtigian, et al., Moreover, hydropower projects can contribute to
2021). climate adaptation by regulating river flows, which

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 Hydropower Development in Nepal: Its Achievements and Opportunities-Lekha Nath Pandey & Assoc. Prof. Dr. Pawan Kumar Patodiya

can reduce the risk of floods during the monsoon including clearer regulations, risk mitigation
season and mitigate droughts during dry periods. strategies, and incentives for private and foreign
Multi-purpose hydropower projects that integrate investors.
flood control, irrigation, and water supply functions
Technical Challenges and Infrastructure
could significantly enhance climate resilience of
Limitations
Nepal (Pakhtigian, et al., 2021).
The rugged geography of Nepal advantageous
Challenges and Constraints of
for hydropower, also presents technical and
Hydropower Development in Nepal
infrastructural challenges. Constructing large
Environmental and Social Impacts hydropower plants in remote, mountainous areas
While hydropower is a clean energy source, requires significant engineering expertise and
its development is not without environmental advanced technologies. Poor accessibility to many
and social consequences. Large hydropower project sites increases both the cost and complexity
projects can disrupt local ecosystems, affect river of construction. The existing transmission and
biodiversity, and lead to deforestation. They can distribution infrastructure are underdeveloped.
also have significant impacts on local communities, (Singh et al., 2020) The lack of adequate
particularly in terms of displacement, loss of transmission lines has resulted in electricity
livelihoods, and changes in water access (Pakhtigian, generated in one part of the country being stranded
et al., 2021). Environmental assessments and and unable to reach areas where it is needed.
resettlement plans are critical to ensuring that these Addressing these bottlenecks requires investment in
projects are sustainable and socially responsible. transmission corridors, particularly in regions like
Adopting best practices in environmental the Koshi, Marsyangdi, and Solu corridors, where
management and integrating community benefits major projects are located.
into project planning are essential for minimizing
Despite these initiatives, the hydropower sector
negative impacts.
faced significant hurdles in its early stages.
Financial Constraints and Lack of Investment Political instability, bureaucratic inefficiencies,
One of the most significant challenges facing lack of investment, and difficulties in constructing
Nepali hydropower sector is the lack of financing. infrastructure in Nepal’s rugged terrain were among
Hydropower projects are capital-intensive, often the key challenges. Furthermore, issues related to
requiring substantial upfront investments with long land acquisition, displacement of local communities,
payback periods. Securing financing from both and inadequate transmission infrastructure slowed
domestic and international sources can be difficult the pace of development. Hydropower projects,
due to political instability, currency risks, and an often capital-intensive, also struggled to secure the
underdeveloped financial market (Bishwakarma, necessary financing.
2020). Opportunities for Hydropower
Despite efforts to attract foreign direct investment Development in Nepal for the Future
(FDI), the sector continues to struggle with As Nepal looks beyond the challenges posed by
inconsistent policy frameworks, bureaucratic the pandemic, the hydropower sector remains
delays, and regulatory hurdles that deter investors. central to its economic ambitions. With significant
To unlock the sector’s full potential, Nepal needs
untapped potential, hydropower can not only meet
to create a more investor-friendly environment,
domestic demand but also position Nepal as a key

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Hydropower Development in Nepal: Its Achievements and Opportunities-Lekha Nath Pandey & Assoc. Prof. Dr. Pawan Kumar Patodiya

energy exporter in South Asia (Singh et al., 2020). term success of hydropower projects, especially in
Investments in transmission infrastructure, along Nepal, the following considerations are critical:
with policies that promote sustainable energy
Nepal, being an agricultural country, must prioritize
consumption, will be crucial to realizing this vision.
rivers that are or will be vital for agricultural use.
The future of hydropower in Nepal is bright, with
Hydropower projects should be prohibited in rivers
opportunities for growth, innovation, and regional
where a significant portion of the water is expected
cooperation. By addressing current infrastructure
to be used for future agricultural needs.
gaps and fostering an inclusive development
approach, Nepal can transform its hydropower With global warming leading to the depletion of
resources into a lasting engine for prosperity rivers, many rivers are likely to become essential
(Pakhtigian, et al., 2021).This version is more sources of drinking water. Hydropower projects
structured and offers clearer insights into Nepal’s should not be permitted in rivers that are projected
hydropower sector, touching on its achievements, to supply drinking water in the next five decades,
challenges, and future opportunities. ensuring that future water needs are prioritized over
energy production.
Role of the Government, Private Sector, and
International Cooperation The foundation of any hydropower project lies in
a thorough study of the geographical stability, soil
The government have a key role in setting strategic
structure, and water flow, particularly during the
goals, creating a stable regulatory environment, and
dry season. Detailed assessments of these factors
attracting investment. It must act as a facilitator in
should be mandatory before the project is approved.
infrastructure development and policy reform, while
ensuring that social and environmental standards In Nepal, private energy companies currently bear
are sustained (Rana, 2020).Private investment is the burden of managing every stage of a hydropower
vital for hydropower development. The private project, from feasibility studies to construction
sector should take the lead in innovation, project and operation. In contrast, in most countries,
development, and capacity building. Companies government agencies manage key preparatory
can also explore new financing models, like public- activities like detailed project reports, road and
private partnerships, to advance large projects. transmission line construction, land acquisition,
International collaboration will be critical for and environmental assessments. By adopting a
financing, technology transfer, and expertise. similar model, Nepal can reduce inefficiencies,
Development partners such as the World Bank, prevent redundant infrastructure (such as multiple
Asian Development Bank (ADB), and bilateral transmission lines along the same river), and avoid
agencies can provide technical and financial unnecessary damage to village economies and
assistance. As per Singh et al. (2020), international natural beauty. This approach would also eliminate
investors and stakeholders can help Nepal build a the practice of “locking up” river resources without
robust hydropower infrastructure and explore cross- development, and promote the expansion of road
border energy trade (Lohani et al., 2023). and transmission networks(Butchers et al., 2020).

Key Considerations for Sustainable Hydropower Many companies or individuals with hydropower
Development in Nepal licenses lack the financial capacity to implement the
projects, posing a significant barrier to hydropower
To ensure the sustainable development and long-
development. Adequate financial assessment and

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 Hydropower Development in Nepal: Its Achievements and Opportunities-Lekha Nath Pandey & Assoc. Prof. Dr. Pawan Kumar Patodiya

support mechanisms must be in place to ensure that should prioritize the construction of transmission
only capable entities are granted licenses. Feasibility corridors, especially in regions where projects are
studies and detailed project proposals are critical to hindered by inadequate infrastructure. Modernizing
the project’s success. These sensitive tasks should the national grid to handle intermittent power and
be conducted only by qualified firms, and these ensuring power is distributed efficiently will be
firms should be held accountable for the long-term essential.
outcomes of their work, not just their remuneration. It is critical to integrate comprehensive
A higher standard of responsibility will ensure more environmental assessments and social safeguards
accurate and reliable project assessments (Lohani et into all hydropower projects. Community
al., 2023). involvement and fair compensation for displaced
The design and structure of the hydropower project populations must be central to project planning.
should align with the geographical requirements Promoting run-of-the-river hydropower projects,
of the site. If meeting these needs would make the which have lower environmental impacts than
project financially nonviable, it would be more large storage-based projects, can help balance
prudent to avoid such developments, preventing development with ecological preservation.
economic loss to investors and harm to the The government should streamline the regulatory
environment. Hydropower projects can be a major approval process to reduce bureaucratic delays
boon for Nepal, but only if they are executed with and ensure a stable policy framework that instills
proper management, modern construction methods, investor confidence. Reforms should also focus on
reputable companies, and a complementary plan that creating a transparent and competitive electricity
minimizes erosion and protects the environment. market, improving tariff-setting processes, and
Timely and efficient implementation is essential for simplifying land acquisition procedures.
the success of these projects.
Nepal should continue strengthening cross-border
Recommendations for Overcoming Challenges and energy trade agreements with India, Bangladesh,
Maximizing Opportunities and China. Developing long-term, mutually
To fully capitalize on Nepal’s immense hydropower beneficial partnerships through regional grids and
potential and address existing challenges, several joint hydropower ventures can significantly boost
key actions are recommended: exports, revenue, and regional energy security.

The government must create a more conducive

environment for investment by simplifying Conclusion
regulations, offering tax incentives, and ensuring
The future of hydropower development in Nepal
policy consistency. Establishing risk-sharing
is filled with immense opportunities, but also
mechanisms, such as insurance for political and
considerable challenges. By addressing financial,
financial risks, would help attract both domestic and
technical, and regulatory barriers, Nepal can unlock
international investors. Expanding public-private
its hydropower potential to not only meet domestic
partnerships (PPP) and exploring green bonds could
energy needs but also emerge as a key energy
provide innovative financing solutions for large
exporter in the region. Sustainable and inclusive
projects.
development of this sector will be crucial to ensuring
Investment in transmission lines and grid that hydropower becomes a pillar for economy and
infrastructure is crucial. The government and NEA
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Hydropower Development in Nepal: Its Achievements and Opportunities-Lekha Nath Pandey & Assoc. Prof. Dr. Pawan Kumar Patodiya

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