Between 2007 and 2017, the country went through a massive electricity supply shortage that caused up to 18 hours of daily load-shedding.

In western Nepal, people would cross the border into India to charge their mobiles, laptops and electric torches.

The situation has reversed.

India’s increasing energy needs provide ample opportunities for Nepal to realise its hydropower potential. Bangladesh, too, has set an eye on Nepal’s clean energy.

Nepal has a big hydropower dream.

In the last decade, Nepal generated 2,000 MW of hydroenergy. And in the next ten years, it aspires to generate 28,000 MW. Of the total targeted generation, plans are to export 15,000 MW—particularly to India and Bangladesh.

A report in 2016 showed that export earnings from Nepal’s hydropower are substantial at Rs310 billion in 2030 and could go up to Rs 1 trillion by 2045.

Nepal’s current generation is close to 3,000 MW. The country’s hydroelectricity potential is estimated to exceed 72,000 MW based on the design of projects in which they can generate power to their ultimate limit for at least 4.8 months in a year, according to a study carried out by the Water and Energy Commission Secretariat.

Nepal’s hydropower potential and its ability to contribute to South Asia’s transition to clean energy are being discussed not only in Nepal but also in India and Bangladesh.

Since Nepal’s electricity is based on hydropower plants and India’s power system is primarily coal-based, imports from Nepal would cut down not only India’s carbon emissions, but also global emissions.

Lower investment requirements to meet the same demand and reduced electricity costs result in welfare gain to India regarding higher private household consumption.

But Nepal faces numerous challenges to realise the dream.

There are three key challenges—investment shortfall due to political uncertainties, climate change and geopolitical factors.

Nepal’s power developers, the government and the private sector—have already proposed development of projects over 20,000 MW.

According to Nepal Electricity Authority, the state-owned power utility, it has already signed a power purchase agreement (PPA) with developers of the projects with a combined capacity of over 9,000 MW.

Developers have already submitted proposals for signing PPA for over 10,000 MW.

Prabal Adhikari, former senior official of Nepal Electricity Authority, said managing financial resources for the projects would be a daunting task.

According to the government’s estimates, as much as $46.5 billion (Rs6,209 billion), which is just over Nepal’s annual gross domestic product, will be required to generate the targeted power, including the development of transmission lines.

According to the draft action plan, yet to be publicised but seen by the Post, $40 billion will be required for power generation, $5.5 billion to build transmission infrastructure and $1.2 billion to improve the distribution network.

The government expects to generate resources from public funds, private sector, banks and financial institutions, climate financing, non-resident Nepalis and foreign direct investment.

“Private sector, from home and abroad, needs to be roped in for investment,” said Adhikari. “But there should be a conducive investment climate in the country.”

Experts say that climate change is another challenge in tapping Nepal’s hydro potential.

With a number of projects damaged by floods and landslides in the recent past, there is a need to build stronger structures.

“This will require extra investment too,” said Adhikari.

The Melamchi project is an example of how the situation could become worse.

On June 15, 2021, the Melamchi river experienced massive flooding and caused disastrous damage downstream, including the project from where water was supplied to the Kathmandu valley.

The situation was triggered by incidents of heavy rainfall, glacial lake outburst and a landslide dam outburst flood in the upper reaches of the river’s catchment in June and August 2021, according to a study carried out by a key financier of hydropower projects in Nepal—the Asian Development Bank.

Nepal Electricity Authority is optimistic about generating financing.

“We have to be ambitious,'' Kul Man Ghising, managing director of NEA, told the Post in a recent interview. “Even if we can meet 50-60 percent of the target, that will be a huge achievement.”

There is geopolitics too.

The southern neighbour has been treating electricity as a strategic commodity. So, by introducing the Procedure for Approval and Facilitating Import/Export (Cross Border of Electricity) by the Designated Authority in February 2021, India has effectively barred the entry of power generated by projects with Chinese involvement.

So, each and every project is scrutinised before it gets India’s import approval.

“So, Nepal’s export potential will also be subject to Indian policy changes,” said Adhikari.

The private sector, however, believes that despite the entry barrier to electricity generated by projects involving Chinese companies, India will buy Nepal’s electricity to increase the proportion of clean energy in its overall energy mix.

According to the private sector representatives, political instability remains a big problem in attracting investment in the hydropower sector.

“The private sector has promised to build projects with a combined capacity of 10,000 MW,” said Ganesh Karki, president of the Independent Power Producers’ Association of Nepal (IPPAN).

“But there is continued red tape in the approval process and problems of land acquisition and forest clearance have been troubling for hydropower in the country.”

“Measures should also be taken to ease the entry of foreign investment and foreign loans in the country to boost investment,” Karki said.

In order to attract investment, it is necessary to guarantee the market for the power to be produced.

While domestic demand is not growing as rapidly as expected because of sluggish economic growth, India has been slow to give approval for the export of Nepal’s power in the southern market.

The government has set a target to increase domestic consumption to 13,500 MW by 2035, assuming that the economy would grow at an average of 7.2 percent annually.

But poor transmission and distribution infrastructure has emerged as a stumbling block to increasing domestic consumption.

“If you cannot evacuate power because of a lack of transmission line, how can you increase domestic consumption substantially,” said Adhikari.

Stakeholders said that sluggish economic growth and slow pace of entry of new industries are the reasons for subdued domestic demand.

Infrastructure bottlenecks continue to remain big hurdles for exporting power too.

Currently, there is only a single high-capacity 400 kV cross-border transmission line between Nepal and India which can transmit up to 1,000 MW of power.

Four high-capacity transmission line projects are either in the construction phase or in the planning phase.

The SJVN Arun-3 Power Development Company, the developer of the 900 MW Arun 3 Hydropower Project, has been constructing a 400 kV Dhalkebar-Sitamarhi line to transmit up to 2,000 MW.

Likewise, construction of the New Butwal-Gorakhpur Transmission Line, which will be able to supply up to 3,500 MW, is underway following the laying of the foundation stone in June last year.

The 400kV Inaruwa (Duhabi-Purnia, Bihar) and 400kV New Lamki (Dodhara-Bareli, Uttar Pradesh) cross-border lines have also been planned to be built by 2027-2028 and 2028-2029, respectively.

Even though the southern neighbour promised to buy 10,000 MW in 10 years from Nepal under the long-term power trade agreement signed in early January 2024, transmission infrastructure might be a major hindrance to taking power to India.

“All the proposed cross-border transmission lines must be built to be able to export targeted quantities of power to India,” said Adhikari, who is also a former power trade director at the Nepal Electricity Authority. “More cross-border power lines should also be built.”

Besides exports to India, Nepal’s target of exporting 5,000 MW to Bangladesh will be even more challenging due to the lack of transmission infrastructure.

Nepal and Bangladesh are working on the export of only 40 MW of power from Nepal because of the limited spare capacity of India's cross-border transmission infrastructure with Bangladesh.

India has set a target to achieve 50 percent cumulative electric power installed by 2030 from renewables, and achieve net-zero carbon emissions by 2070.

The southern neighbour aims for 500 GW of renewable energy installed capacity by 2030. Nationwide fossil-fuelled plants generate more than 70 percent of India’s electricity generation currently.

“I think India will buy Nepal’s clean energy if power is available here,” said IPPAN President Karki. “Why should it be ready to consume fossil fuel-based power when clean energy is available in Nepal at a cheaper rate?”

The private sector also wants the government to provide trading licences to the private sector as early as possible.

“Private sector players will themselves explore the market if they get trading licences, including in India,” Karki said. “This will broaden the scope of the market for the country’s electricity.”