Nepal Unveils 10-Year Energy Strategy to Boost Consumption and Exports

Kathmandu. The government has unveiled the 'Energy Consumption Growth and Export Strategy, 2083 (Fiscal Year 2082/083–2092/093)' with the aim of transforming the country's energy sector. The Ministry of Energy, Water Resources and Irrigation stated that this 10-year strategic roadmap is designed to increase domestic consumption of electricity, export surplus power to regional markets to reduce trade deficits, and achieve overall economic prosperity.

This 10-year strategy seeks to connect Nepal's energy sector to the broader dimensions of consumption and trade, rather than limiting it to production alone. The strategy is launched with a target of exporting 15,000 megawatts and reaching 1,500 units of per capita consumption within 10 years. If reservoir-based projects and cross-border transmission lines are completed within the stipulated timeframe, Nepal is poised to become truly energy self-reliant, a source of light for neighboring countries, and a foundation for its own economic prosperity.

Although the history of hydropower development in Nepal is quite old, its commercial expansion has accelerated only in recent decades. The 500-kilowatt Pharping Hydropower Project, completed in 1968 B.S., marks the beginning of Nepal's modern energy development. In 2041 B.S., the Nepal Electricity Authority Act was enacted, integrating power generation, transmission, and distribution. Subsequently, the Electricity Act 2049 and the Water Resources Act 2049 introduced liberalization in the energy sector by ensuring private sector participation.

Currently, Nepal's total installed electricity capacity has reached approximately 4,086 megawatts, with a significant contribution from the private sector. With the expansion of the national transmission grid, electricity access has reached about 98 percent of the population, and per capita electricity consumption has reached around 450 units. In line with the national commitment to achieve net-zero carbon emissions by 2045, it is imperative to reduce dependence on fossil fuels and increase the consumption of domestic clean energy. Recently, Nepal signed a long-term power trade agreement with India to export 10,000 megawatts of electricity over 10 years. Currently, about 1,200 megawatts of electricity are being imported and exported to India and Bangladesh.

Despite significant progress in the energy sector over the last decade, seasonal imbalances and low domestic consumption remain major challenges. There is a situation where surplus electricity is wasted after domestic consumption in the rainy season, while electricity must be imported in winter to meet demand due to reduced production. In such a situation, by developing power projects in a balanced manner to meet domestic demand throughout the year, creating internal demand to reach 1,500 kilowatt-hours of per capita electricity consumption, and exporting surplus electricity during peak times when demand and prices are high, Nepal can significantly increase its revenue and help reduce the trade deficit.

The 100-point agenda for governance reform approved by the Council of Ministers on 2082 Chaitra 13 mentions that the Ministry of Energy, Water Resources and Irrigation should prepare an energy export strategy within one month and make arrangements to sell peak-time electricity exports at high prices. The Sixteenth Plan (Fiscal Year 2081/082 and 2085/086) aims to reach an installed capacity of 11,769 megawatts and a per capita electricity consumption of 700 kilowatt-hours.

Similarly, the Energy Development Roadmap 2081 sets a target of producing 28,500 megawatts and exporting 15,000 megawatts by 2035. In this context, the main objective of this strategic plan is to prioritize domestic consumption and export surplus electricity to regional markets at competitive rates to reduce the trade deficit and achieve overall economic prosperity.

What are the challenges?

Weaknesses in the distribution system and the lack of quality supply in the industrial sector are the main challenges in Nepal's energy sector. There is a need to increase the use of electrical appliances in household, agricultural, and industrial sectors, while charging infrastructure for electric vehicles and energy-intensive industries have not yet been developed. Accelerating the construction of cross-border transmission lines and large reservoir-based projects for the export of surplus electricity is challenging.

Similarly, the lack of legal provisions for private sector participation in electricity trade, the high cost of produced electricity, and policy differences with neighboring countries have made it difficult to compete in the regional market. Upgrading the national grid to international standards and building a coordinated and competitive electricity market with neighboring countries is the current major challenge.

However, Nepal has abundant opportunities to reduce the trade deficit and build an energy-based economy by exporting hydropower. Energy security can be ensured by increasing domestic consumption in transport and industry. The agreement with India to export 10,000 megawatts in 10 years and the Bangladeshi market provide a clear basis. The synergy between high production in the rainy season and regional demand is expected to fetch good prices. Nepal has a historic opportunity to replace fossil fuels, save foreign currency, increase access to climate finance, and strengthen the country's balance of payments through energy-intensive industries like green hydrogen.

Vision, Goal, and Targets

The vision is to establish Nepal as a regional clean energy hub by maximizing the sustainable use of clean energy, becoming energy self-reliant, and exporting electricity competitively. The goal is to make the energy sector a major pillar of economic development by increasing exports after domestic consumption through rapid development of power infrastructure, balancing the production mix, and improving the legal framework.

The target is to reach 1,500 units of per capita electricity consumption by 2035, achieve a total installed capacity of 28,500 megawatts, with about 13,500 megawatts for domestic consumption and an export capacity of about 15,000 megawatts, and establish Nepal as a reliable clean energy supplier in bilateral and sub-regional markets by coordinating production, transmission, distribution, and market systems.

What are the objectives?

The government's first objective is to ensure the availability of sustainable energy for domestic consumption and export by increasing electricity production based on clean energy. The second objective is to increase the firm and dispatchable capacity of the system by prioritizing the development of reservoir, semi-reservoir, pumped storage, and battery energy storage projects.

Similarly, the government aims to make the internal transmission and distribution system strong, reliable, and high-quality, achieve full electrification within the next two years to expand access and use of electricity, and create an environment for the expansion of electric vehicles and infrastructure while reducing dependence on petroleum products in the transport sector.

The government also aims to ensure transmission infrastructure for exports by rapidly expanding high-capacity internal and cross-border transmission structures, increase the export of surplus electricity after domestic consumption, contribute to revenue growth through targeted electricity exports during high-rate periods, and involve the private sector in electricity trade and the construction of transmission infrastructure.

What are the policies and strategies?

The strategies and policies formulated for the overall development and reform of the electricity sector cover areas from production growth to exports. The first strategy aims to attract domestic capital for small and medium projects and foreign investment for large reservoir projects, involve the private sector in transmission line construction, and simplify land acquisition and forest area processes.

To make the internal supply system reliable, policies have been adopted to complete projects under construction on time, expand corridor-based transmission systems, and modernize the distribution system. Similarly, to promote electricity consumption, the plan includes reducing subsidies on LPG, increasing the use of electric stoves, making electrical appliances mandatory in government agencies, converting vehicles to electric, and increasing electricity usage in the industrial and agricultural sectors through concessional tariffs and 'dedicated feeders'.

For cross-border trade, the government aims to make grid operation reliable by rapidly constructing transmission structures and upgrading the National Load Dispatch Center, and to prioritize access to various segments of the Indian market for electricity exports, focusing on long-term trade agreements during periods of high prices. To achieve these goals, the government's strategy is to ensure private sector participation in electricity trade, maintain legal harmony with the regional market, and prepare the necessary regulatory structure for a multi-buyer-seller market to carry out legal and institutional reforms.

Action plan with a target to produce 24,500 megawatts

The 40-megawatt Raghuganga Hydropower Project must expand production within the fiscal year 2083/084. Similarly, the Tanahu Hydropower Project (140 megawatts) has a deadline until the fiscal year 2085/86. The action plan is to complete Upper Modi (42 megawatts) and Upper Modi (18.2 megawatts) within the fiscal year 2086/87.

Similarly, Upper Trishuli '3B' (37 megawatts) has a deadline to be completed by 2084/85. Budhigandaki (1,200 megawatts), Dudhkoshi Reservoir Project (670 megawatts), Nalgad (417 megawatts), and Upper Arun (1,061 megawatts) have a deadline until 2091.

Arun-4 Hydropower Project (490 megawatts) has a deadline until 2090, Chainpur-Seti (210 megawatts) until 2087, Tamakoshi-5 (99 megawatts) until 2086, Naumure Multipurpose Project (281 megawatts) until 2092, Betan Karnali Hydropower Project (436 megawatts) until 2090, and Uttar Ganga Hydropower Project (828 megawatts) until 2092.

Similarly, solar energy projects promoted by the Nepal Electricity Authority (over 1,000 megawatts) by 2084, other projects promoted by government companies and the Nepal Electricity Authority and its subsidiaries (about 3,500 megawatts) by 2092, and projects promoted by the Independent Power Producers' Association (IPPAN) (including solar and export-oriented projects, about 14,000 megawatts) by 2092. Accordingly, the government has set a total production growth target of 24,500 megawatts by 2035 (2092).