KATHMANDU: The government has identified 13 key challenges in Nepal’s energy sector, concluding that effective policy measures, diversified investment, and legal reforms are necessary to address them.
According to the Energy Consumption Growth and Export Strategy 2083 prepared by the Ministry of Energy, Water Resources and Irrigation, major challenges include weak distribution system capacity and quality, as well as the lack of reliable electricity supply for the industrial sector.
The strategy also highlights rising electricity demand driven by increased use of high-consumption devices in households and commercial sectors, as well as growing demand in agriculture, irrigation, and industry. In addition, the lack of electric vehicle charging infrastructure has been identified as a key obstacle.
Other challenges include the underdevelopment of data centres, green hydrogen, fertiliser industries, and electricity-intensive sectors such as modern brick kilns. The government has noted that surplus electricity, once domestic demand is met, should be exported to bilateral, sub-regional, and regional markets.
The need to expand internal and cross-border transmission lines and related infrastructure has also been emphasized. The strategy calls for the development of large reservoir-based hydropower projects aligned with both domestic demand and regional market requirements.
Policy and regulatory inconsistencies with neighbouring countries, along with the absence of clear legal provisions to enable private sector participation in electricity trade, have been identified as additional barriers.
The government has also pointed out that the relatively high cost of electricity production in Nepal makes it difficult to compete in regional markets. Upgrading the national grid to match neighbouring systems and developing a competitive electricity market are further challenges.
Despite these issues, the government sees significant opportunities in the sector. Hydropower development is viewed as a key avenue to reduce the trade deficit by promoting electricity exports.
Expanding electricity use in transport, households, and industries could significantly boost domestic consumption, while domestically generated clean energy offers a path toward long-term energy security.
The strategy also identifies strong export potential, particularly under the long-term agreement with India to export 10,000 MW of electricity over the next decade. During Nepal’s peak production season, demand in neighbouring countries such as India and Bangladesh remains high, creating opportunities for better pricing.
As neighbouring countries pursue carbon neutrality, Nepal’s hydropower is seen as an attractive source of green energy. This presents an opportunity to reduce reliance on fossil fuels, save foreign currency, and strengthen the balance of payments.
The government also highlights the potential to access climate finance and carbon markets, and to build an energy-based economy by promoting energy-intensive industries such as data centres, green hydrogen, and chemical fertiliser production.
Under the strategy, the government aims to increase per capita electricity consumption to 1,500 units by 2035 and achieve a total installed capacity of 28,500 MW—13,500 MW for domestic use and 15,000 MW for export.
The plan envisions a significant rise in electricity exports, contributing to a reduction in the trade deficit and a stronger role for the energy sector in the national economy. It also aims to ensure universal access to reliable electricity, improve market management of surplus power, reduce environmental pollution, and support the achievement of sustainable development goals.
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