Nepal, being a landlocked developing nation with no fossil fuel resources, faces the challenge of meeting its energy demands. However, a promising solution lies in tapping into the potential of our rivers. By harnessing the power of these rivers, we not only have the capacity to fulfill our own energy requirements but also to generate surplus energy that can be exported to neighboring downstream countries in need.

Blessed by a mountainous landscape and nourished by the robust flow of rivers like the Koshi, Karnali and Gandaki, Nepal is truly a treasure of hydropower potential. With an estimated technical capacity of 83,000 MW and an economically viable potential surpassing 40,000 MW, Nepal is on the path to becoming a major provider of clean energy to its South Asian neighbors.

The country previously challenged by hours of daily long power cuts has transitioned into a phase of exporting surplus electricity to its neighboring nations during the wet season. This trend is expected to persist and expand further with the commissioning of additional generation projects in the years ahead. Curious about the evolving landscape of Nepal's hydropower sector and its future outlook? Let's take a closer look, understanding its present condition and prospects for the future.

Geographical Advantage for Hydropower

Nepal's hydropower potential is greatly enhanced by its mountainous topography and abundant water resources, featuring approximately 6,000 rivers with a combined length of 45,000 kilometers. The annual water runoff from these rivers amounts to about 220 billion cubic meters, contributing to a hydropower potential of 83 gigawatts. The major river basins in the country include Sapta Koshi, Karnali, Sapta Gandaki and the Southern rivers.

Along with abundant water resources, Nepal's strategic location between the two largest economies in Asia: India and the People's Republic of China, enhances its geopolitical significance. Both India and China face an annual upswing in electricity demand and Bangladesh faces a growing energy deficit.

So far, Nepal has developed less than 3,000 MW of hydropower, representing only a small fraction of its overall economic potential. Even with completion of under construction hydropower projects, a considerable portion of this potential remains available for further development. The favorable aspect is that India, China and neighboring south Asian countries like Bangladesh could easily purchase any excess electricity supply beyond the needs of Nepal.

History of Hydropower in Nepal

Nepal started its journey in hydropower relatively early, marking a significant milestone with the establishment of the first plant in Pharping (500 KW) in 1911. This early venture unfolded 29 years after the world's first hydropower plant was constructed in 1882 in Wisconsin, USA and was used to power the royal palace and the surrounding area. This was one of the oldest hydropower plants in Asia at the time.

The second hydropower plant, with a capacity of 640 KW, was founded in Sundarijal in 1936. Additionally, the Morang Hydropower Company, established in 1939, constructed the 677 KW Sikarbas Hydro Plant at Chisang Khola in 1942.

The formalization of hydropower development gained momentum with the initiation of the development planning process. Under the First Five-year Plan (1956-61), the goal was set to increase hydropower capacity by 20 MW.

After the construction of the Pharping Hydropower Plant, there was little progress in hydropower development in Nepal for many years. Prior to 1960, Nepal's power output was a mere 1.1MW. The Nepal Electricity Authority (NEA) reported that by 2005, the country had managed to develop only 556.8MW of hydropower capacity.

During the 1960s and 1970s, Nepal experienced a significant surge in hydropower development, driven by various factors. Notably, in 1962, the Nepal Electricity Corporation (NEC) was established to oversee electricity transmission and distribution. The momentum continued in 1977 with the creation of the Small Hydropower Development Board, dedicated to promoting small-scale hydropower projects.

Likewise, the Nepal Electricity Authority (NEA) came into existence on August 16, 1985, as per the Nepal Electricity Authority Act of 1984. This establishment was the outcome of merging the Department of Electricity from the Ministry of Water Resources, the Nepal Electricity Corporation, and several affiliated Development Boards.

In recent years, there has been a renewed interest in hydropower development in Nepal. This is due to a number of factors, including the growing demand for electricity, the availability of financing, and the development of new technologies. Some of the major hydropower projects that are currently under construction. Nepal transforms into an energy surplus country, with hydropower playing a significant role in ensuring national energy security.

Current Hydropower Capacity and Projects

Nepal is endowed with substantial hydro-resources, featuring one of the highest per capita hydropower potentials globally. The theoretical power potential is estimated at around 83,000 MW, while the economically feasible capacity is evaluated at approximately 43,000 MW. 

According to the Nepal Electricity Authority (NEA), the total generation capacity for the last fiscal year 2022/23 reached 2,684 MW, including the commissioning of new projects with a combined capacity of 491 MW. As per the latest monthly report from the Nepal Electricity Authority (NEA), NEA itself contributes 660 MW, while its subsidiaries contribute 492 MW, and Independent Power Producers (IPPs) contribute 1,655 MW, resulting in a cumulative total of 2,807 MW.

The total available energy in FY 2022/23 is 12,369 GWh, reflecting a 12% increase compared to the previous fiscal year FY 2021/22 with 11,064 GWh. Within this energy landscape, NEA's generation amounted to 2,930 GWh, NEA subsidiaries contributed 2,488 GWh, and Independent Power Producers (IPPs) played a substantial role with a generation of 5,118 GWh. Importantly, during the dry season, NEA imported an additional 1,833 GWh.

In terms of energy utilization, the domestic consumers maintained their significant majority, comprising 92.32% of the total electricity consumers, rose from 8,870 GWh in the previous year to 9,358 GWh in FY 2022/23. In contrast, industrial consumers made up 1.31%, with other consumer categories contributing 6.37%.

Breaking down the energy sources, NEA and its subsidiaries collectively accounted for 43.80% of the total available energy, while imports from India and purchases from domestic IPPs constituted 14.82% and 41.38%, respectively.

Key Hydropower Companies and Market Overview

Nepal has transitioned into a phase of power surplus during the rainy season, a feat made possible by the establishments of key hydropower companies in the recent decade. The total energy generation is a result of the combined contributions from NEA, its subsidiaries, and Independent Power Producers (IPPs).

Major Hydropower Stations:

1. Kaligandaki ‘A’ Hydropower Station (144 MW)
2. Middle Marsyangdi Hydropower Station (70 MW)
3. Marsyangdi Hydropower Station (69 MW)
4. Kulekhani I Hydropower Station (60 MW)
5. Upper Trishuli 3A Hydropower Station (60 MW)
6. Kulekhani-II Hydropower Station (32 MW)
7. Chameliya Hydropower Station (30 MW)
8. Trishuli Hydropower Station (24 MW)
9. Gandak Hydro Power Station (15 MW)
10. Devighat Hydropower Station (15 MW)

Hydropower Projects (NEA’s Subsidiary Companies)

1. Chilime Hydro Power Company Limited (22.1 MW)
2. Upper Tamakoshi Hydropower Limited (456 MW)

Private Sector Participation in Hydropower Sector:

In order to meet the energy demands of the country, the Nepal Electricity Authority (NEA) has been promoting private sector engagement through the facilitation of Power Purchase Agreements (PPA).

As per the NEA, a total of 27 new projects, developed by Independent Power Producers (IPPs), were successfully commissioned, collectively contributing 491MW to the installed capacity in the fiscal year 2022/23. This development has elevated the overall count of operational IPP-owned projects to 159, boasting a combined installed capacity of 2,023 MW.

Simultaneously, 126 projects with a combined installed capacity of 3,103 MW, undertaken by IPPs, are currently in the construction phase following financial closure. Additionally, 107 IPP-owned projects, totaling 2,632 MW in installed capacity, are in various stages of development.

Government Policies and Regulatory Environment

The government of Nepal, acknowledging the substantial potential of hydropower to bolster the country's economy and ensure energy security, has enacted various policies and regulations:

Key Policies:

Hydropower Development Policy, 2058: This policy outlines the government's long-term vision for the hydropower sector, with a focus on promoting private investment, increasing electrification rates, and ensuring sustainable development.

Electricity Act, 2049: This act regulates the generation, transmission, distribution of electricity in Nepal and to standardize and safeguard the electricity services.

Regulatory Environment:

Nepal's hydropower sector, rich in potential but encountering diverse challenges, operates under a comprehensive regulatory framework involving several governing bodies:

Ministry of Energy, Water Resources and Irrigation: Sets overall policy direction and oversees the sector.

Electricity Regulatory Commission (ERC): Established in 2076, the ERC is the independent regulatory body with broad authority over the sector. It sets tariffs, resolves disputes, and monitors market performance.

Department of Electricity Development (DOED): The major functions of the Department are to ensure transparency of regulatory framework, accommodate, promote and facilitate private sector's participation in power sector and license to power projects.

Nepal Electricity Authority (NEA): The state-owned utility purchases most of the hydropower generated, acting as the primary buyer.

Water and Energy Commission Secretariat (WECS): This commission advises the government on hydropower development policy, environmental impact assessment, and water resource management.

Investment Board of Nepal: Facilitates large-scale hydropower projects exceeding 200 MW or with investments of over 6 billion Rupees.

Future Outlook and Expansion Plans

Out of Nepal's economically viable potential surpassing 40,000 MW for power generation, only a modest fraction—specifically 2,800 MW—is currently being utilized, pointing towards higher potential in the sector's future outlook.

Simultaneously, the expanding horizon of opportunities in the cross-border electricity market, initiated a few years ago, is gradually broadening to effectively manage the increasing surplus electricity during the wet season.

The recent official visit of the Prime Minister to India has laid the groundwork for a long-term power export initiative of 10,000 MW over the next decade. Concurrently, it has created a conducive environment for the expansion of the power market into Bangladesh. Likewise, to accelerate economic development, the nation is also focused on bolstering domestic consumption while concurrently reducing dependence on imported fossil fuels.

Nepal is strategically developing a 12-year plan under the Ministry of Energy, Water Resources, and Irrigation to boost energy production and expand the market. The ambitious target is to generate more than 28,000 MW of electricity by 2035. Envisaging a domestic demand of 13,500 MW, the plan also anticipates exporting 15,000 MW by 2035, surpassing the expected domestic consumption.

Conclusion

A comprehensive examination of Nepal's hydropower sector reveals significant progress in harnessing abundant water resources for economic growth and energy self-sufficiency. The nation's strategic geographical advantage and extensive river network position it as a regional leader in clean energy. Despite notable successes, persistent challenges, including regulatory complexities, financing constraints, and environmental concerns.

The strategic utilization of Nepal's plentiful hydropower resources is essential for the holistic development of the nation. Hydropower, acting as a backbone for economic progress, plays a pivotal role in fostering nationwide growth by promoting industrialization, generating employment opportunities, and diminishing dependence on petroleum imports. The hydropower sector in Nepal has the potential not only to meet the nation's internal energy demands but also possesses the capacity to enhance regional energy security. It stands as a symbol of sustainable energy development, showcasing how a country can leverage its resources to address challenges and position itself as a significant player in the wider South Asian energy transformation.