Nepal’s renewable energy story is dominated by water. Rivers descending from the Himalayas give the country one of South Asia’s strongest hydropower resource bases, and more than 90 percent of its electricity generation comes from hydropower. Yet this does not mean that Nepal has completed its energy transition. Traditional biomass remains widely used for cooking and heating, while imported petroleum products still support transport, industry and other parts of the economy.
The country has therefore reached an important turning point. Its immediate problem is no longer simply producing enough electricity to end long periods of load shedding. Nepal must now strengthen its grid, manage large seasonal changes in hydropower output, expand domestic electricity use and convert wet-season surpluses into reliable export income.
Hydropower Has Moved Nepal Beyond Chronic Electricity Shortages
Nepal’s economically viable hydropower potential is commonly estimated at about 42,000 megawatts, although only a small share has been developed. Installed generation capacity nevertheless expanded rapidly during the past decade and reached approximately 3,600 MW by the end of the 2024/25 fiscal year. Hydropower accounts for the overwhelming majority of this capacity.
The Nepal Electricity Authority remains the central institution in the power market. It controls most transmission and distribution assets, operates its own generating plants and purchases electricity from independent power producers. Private developers have become especially important in new hydropower construction, giving Nepal a mixed system in which generation investment is increasingly distributed across state-owned companies, NEA subsidiaries and privately financed projects.
This expansion has changed daily life and business conditions. Electricity access rose from about 53 percent of the population in 2010 to approximately 95 percent in 2023. The severe scheduled outages that once lasted for many hours each day were largely eliminated as new plants entered service, imports from India improved short-term supply and grid management became more effective.
The next stage is more complex. Building additional hydropower plants will increase available energy, but generation capacity alone cannot guarantee reliable service. New projects must be connected to load centres through transmission lines that cross difficult terrain. Distribution networks must also be reinforced so that industries, commercial users and households can consume more electricity without overloading local systems.
A Renewable Power System That Changes With the Monsoon
Nepal’s hydropower system produces very different amounts of electricity during the wet and dry seasons. Many existing plants are run-of-river facilities, which generate electricity according to the volume of water flowing through rivers rather than storing large quantities behind reservoirs.
During the monsoon, high river flows allow these plants to operate near their maximum output. Nepal can then produce more electricity than the domestic system can absorb at certain times. During the dry winter and spring months, river levels fall and output declines. The country may once again need imported electricity, particularly during morning and evening demand peaks.
This seasonal pattern explains why Nepal can be an electricity exporter and importer within the same year. In the 2024/25 fiscal year, it exported about 2.38 billion kilowatt-hours while importing approximately 1.68 billion kilowatt-hours, leaving the country with a net export position for the year. The trade balance is an important achievement, but it does not remove the underlying mismatch between monsoon production and dry-season demand.
Reservoir hydropower, pumped storage, battery storage and greater solar deployment could help reduce this imbalance. Storage projects can hold water or electricity for use when demand is high, while solar generation is valuable because Nepal often receives stronger sunlight during the dry season, when hydropower output is lower.
Large reservoir projects are more difficult and expensive than smaller run-of-river plants. They require extensive planning, financing, land acquisition and environmental review. Communities may also be affected by changes to rivers, farmland and settlement patterns. For this reason, Nepal’s long-term renewable system is likely to remain a combination of run-of-river projects, selected storage developments, solar facilities and cross-border electricity trade.
Electricity Exports Are Becoming Part of Nepal’s Economic Strategy
India is the main external market for Nepalese electricity and also the country’s main source of imported power during periods of domestic shortage. Trade takes place through several cross-border lines, with additional high-capacity connections planned to support larger volumes.
Nepal began regular electricity exports to Bangladesh in June 2025 under a five-year agreement involving Nepal, Bangladesh and India. The arrangement allows 40 MW of Nepalese electricity to travel through the Indian grid during the wet season. The volume is modest compared with Nepal’s larger trade with India, but the agreement has wider significance. It demonstrates that Nepalese hydropower can be sold beyond its immediate border through a regional transmission system.
Export demand could support investment in projects that would otherwise be too large for Nepal’s domestic market. India and Bangladesh both require additional low-carbon electricity, while hydropower can help balance the expanding solar and wind capacity within South Asia.
However, Nepal cannot treat every proposed hydropower project as an automatic export opportunity. Electricity must be approved for sale into neighboring markets, transmission capacity must be available and project costs must remain competitive. Financing conditions also depend on long-term power purchase agreements, regulatory stability and confidence that new lines will be completed when the plants begin operating.
Export-oriented development must also be balanced with domestic needs. Nepal can earn foreign revenue from wet-season electricity sales, but a stronger economic benefit would come from using more renewable power within Nepal for manufacturing, irrigation, transport, tourism and household energy.
Solar and Decentralised Energy Still Have Distinct Roles
Hydropower receives most of the attention, but solar energy is becoming more relevant. Utility-scale solar plants can be built more quickly than major hydropower projects and can generate electricity during dry periods. Solar facilities located near existing substations or hydropower plants may also use established network connections.
Rooftop solar can support businesses, public buildings and households where grid reliability remains uneven. It is especially useful when paired with batteries, although equipment costs and financing conditions can limit adoption.
Decentralised renewable systems remain important in remote mountain communities where extending the national grid is technically difficult or too expensive. Micro-hydropower, solar home systems, mini-grids and solar-wind combinations have helped provide basic electricity services in areas that large central infrastructure could not easily reach.
As the national grid expands, some isolated systems may be connected or replaced. Others will continue to serve communities where geography makes centralised supply impractical. Nepal’s renewable policy therefore has to support both large commercial projects and smaller local systems rather than assuming that one model can serve the entire country.
Nepal Must Turn Renewable Electricity Into Domestic Development
Nepal’s electricity sector has grown faster than electricity consumption in some periods. This creates a risk that new plants will produce surplus energy while factories, transport systems and households continue to depend on imported fuels.
Electric cooking is one area with significant potential. Replacing firewood and liquefied petroleum gas with electricity could reduce fuel imports, household air pollution and pressure on forests. Electric vehicles can also shift transport demand away from imported petroleum, particularly in cities and along major road corridors.
Industrial electrification may produce even larger gains. Reliable electricity could support cement production, food processing, tourism, information services, cold storage and other activities. These uses would create employment and retain more of the economic value from Nepal’s renewable resources.
The government’s long-term plans call for generation capacity to rise far beyond current levels, with electricity serving both domestic demand and exports. Reaching those ambitions will depend less on identifying additional rivers than on completing transmission lines, improving distribution reliability, attracting finance and creating customers able to use power throughout the year.
Nepal has already shown that hydropower can replace chronic electricity scarcity with a growing renewable surplus. Its next task is to build an energy system in which that surplus supports productive domestic demand, reliable regional trade and a broader reduction in imported fuel dependence.