Nepal’s rivers surge during monsoon season, powering hydropower plants to full capacity and generating surplus electricity to export to nearby countries. Come winter, the country imports electricity at a higher cost from its southern neighbour, India, due to rivers running low and hydropower generation dropping to only a fraction of its potential.
The irony of a country so rich in renewable resources experiencing seasonal energy shortages raises questions about sustainability, energy security and the long-term feasibility of its hydropower aspirations.

Regional milestone
Hydropower has long been the foundation of Nepal’s economic and regional energy strategy. The sector reached a significant milestone last November, exporting 40 MW of electricity to Bangladesh using India’s transmission infrastructure. This was the first electricity sale outside of India, which demonstrated the expansion of regional energy cooperation. With a price of 6.4 cents (Rs8.82) per unit, Nepal is expected to cash in about Rs330 million annually by exporting electricity to Bangladesh from June to November. On the other hand, in just five months into FY 2024-25, India’s electricity exports generated Rs13.04 billion for Nepal’s national economy, reaching a peak at 400 MW daily during the 2024 monsoon.

Despite these successes, the reality is different. To meet the winter demand, Nepal’s power import prices can reach up to Rs16 per unit, which is twice its export earnings. Aiming to compensate for the seasonal energy gap, Nepal imported 1,854 GWh of electricity in FY 2022-23, a 20 percent increase from the previous fiscal year and exported 1,346 GWh during the monsoon, a 173 percent increase. Despite its competency, the cyclical imbalance and inefficiencies in Nepal’s energy management are evident in the increased reliance on imports.

Hydropower dependency
Our energy system primarily depends on run-of-the-river hydropower. These plants are highly productive during the monsoon season but less so during winter, as they rely on the seasonal flow of rivers. With a total installed 3,157 MW capacity—including 2,214 MW with private sector projects—these plants were far from sufficient to meet the peak winter demand of up to 2,316 MW as of mid-2024.

Reservoir-based hydropower projects could be a way out of it, but Nepal currently has only Kulekhani I, II and III—with a recurrent capacity of only 106 MW—to cover the gap. Bigger projects, like the 1,200 MW Budhi Gandaki reservoir, face financial, resettlement and bureaucratic challenges. There are financial implications for this imbalance. The Nepal Electricity Authority (NEA) imported electricity for Rs20 billion during the dry season of FY 2022-23. If Nepal had the right infrastructure to store excess monsoon energy for later use, a large portion of this expense could have been avoided.

Storing energy
Nepal’s seasonal energy dilemma can be resolved with green energy storage technologies. Globally, technologies like Battery Energy Storage Systems (BESS) and Pumped Storage Hydropower (PSH) have helped manage energy.

Given Nepal’s mountainous terrain and abundant water supplies, PSH seems a natural fit. When the demand is low, such systems use excess electricity to move water from a lower reservoir to a higher one. When demand is high or electricity generation falls, the stored water is released to generate electricity. These systems are efficient, have a lifespan exceeding over a century and have minimal environmental impact.

Furthermore, BESS provides short-term energy storage and depends on lithium-ion batteries. These systems, which have up to 90 percent efficiencies, can complement PSH by offering instant backup power during high demand or outages. But they could be less practical as a stand-alone solution for Nepal’s long-term needs as they are more expensive and have a shorter lifespan (15–20 years).

Nepal has already taken a few steps in this direction. With assistance from the Japan International Cooperation Agency (JICA), feasibility studies for PSH projects near Begnas and Rupa lakes are underway. Another vital opportunity to capitalise on is the Lower Seti Pumped Storage Project. Similarly, regarding BESS, a large solar grid-connected project with 245 MWp capacity and 20 MW storage is under preparation, costing $176.43 million. Quicker implementation of these projects is imperative to meet Nepal’s growing energy needs and reduce import reliance.

Beyond hydropower
Even though hydropower dominates Nepal’s energy sector, its renewable power potential goes beyond its rivers. Solar energy, for instance, is also another viable option. With 300 sunny days a year and an average daily solar radiation of 4.7 kWh per square meter, Nepal’s solar capacity is estimated to be 432 GW, nearly 10 times the hydropower potential (42000 MW). The abundance of solar energy, even during the dry season, makes it an ideal complement to hydropower. The declining solar installation costs further enhance its allure.
Additionally, wind energy holds promise, especially in Mustang and Manang, where wind speeds are optimal for electricity production. Studies suggest Nepal’s wind energy alone could generate about 3,000 MW of electricity.

Other potential sources include geothermal energy, which is still largely unexplored from hot springs in places like Tatopani and biogas from agricultural waste. Nepal’s Green Hydrogen Policy 2024, also offers yet another transformative opportunity. Approximately 400,000 kg of green hydrogen could be produced daily from Nepal’s excess monsoon electricity. This can lower our reliance on imported fossil fuels and enhance energy security.

Why growth is slow
Several obstacles challenge Nepal’s journey to energy sustainability. The country’s reservoir capacity is limited and urbanisation and industrial growth are driving up energy demand. Inefficient electricity production, higher energy costs and high transmission and distribution losses (15.38 percent versus the global standard of 8 percent) are evident. 

Prioritising exports over domestic energy needs has left many rural households without reliable electricity access. Private and foreign investments are further discouraged by policy inconsistencies, land acquisition disputes and bureaucratic delays.

Way forward
Authorities must act on multiple fronts to ensure energy security and sustainability. Diversifying the energy mix, increasing grid efficiency and accelerating reservoir-based and PSH development could prove beneficial. Solar, wind, geothermal and green hydrogen investments can complement hydropower and offer long-term stability. Strengthening regional energy trading through bilateral agreements and dedicated cross-border transmission infrastructure could open up new avenues.

Another essential component is energy diplomacy. Nepal’s 2024 regional electricity sale was an important turning point in the trilateral energy trade, which showcased its potential as a regional energy hub. With the right policy reforms and strategic investments, expanding regional partnerships could lead to long-term power trade agreements, infrastructural investment and greater energy security. With proper utilisation of its abundant renewable energy resources, Nepal can carve out its own identity, much like Bhutan’s leadership in a zero-carbon economy. We can set an example by turning our seasonal energy paradox into a resilient model, leading in renewable energy.