Nepal’s hydropower landscape: Challenges and prospects for future growth

Hydropower, driven by the force of flowing water, stands as a renewable energy source critical for Nepal's energy security and global sustainability efforts. Nepal holds a ‘great’ potential for hydropower generation, but realizing this potential comes with its set of challenges, including infrastructural limitations, regional disparities, and the need for strategic planning and international collaboration.

Intertwined with its political history, Nepal's economic journey reflects periods of stagnation and resilience. Emerging from political transformations since the 1960s, Nepal has witnessed shifts in economic policies, trade relations, and investment climates. Despite facing challenges such as political instability and limited infrastructural development, recent years have seen a surge in foreign direct investment (FDI), signaling growing confidence in Nepal's economic prospects.

While sectors like tourism and remittance play crucial roles in Nepal's economy, the hydropower industry is emerging as a cornerstone for sustainable growth. With untapped rivers and a growing expertise in hydropower development, Nepal has the potential to reduce its reliance on imported fuels and bolster energy independence.

Progress and challenges

The landscape of Nepal's hydropower sector reflects both progress and challenges. With initiatives like the Arun-III project, the nation has made strides in expanding its energy infrastructure. However, disparities in project distribution across regions highlight the need for equitable development strategies. While the Eastern region boasts a higher concentration of operational projects, the Mid and Far-western regions lag behind, indicating the need for targeted investment and development efforts.

According to recent data from the Department of Electricity Development, Nepal currently has 142 hydropower projects integrated into the national grid, with a combined production capacity of 2603.46 MW. These projects are distributed across various districts, with Ilam standing out with 16 projects, while Dolakha leads in power generation capacity, followed by Lamjung. However, there is a notable concentration of operational projects in the Eastern region compared to the Western region. 

At present, as per information sourced from the Department of Energy Development (DOED), a total of 244 projects have obtained construction licenses, collectively possessing the potential to generate 8758.04 MW. This appears promising, aligning with market demand and the prospects for cross-border electricity trade. Notably, the Eastern and Western regions maintain prominence in the number of projects under construction. Myagdi leads with 24 projects holding a potential capacity of 797.43 MW, followed closely by Taplejung with 23 projects contributing to a cumulative capacity of 1189.9 MW. In terms of capacity, Sankhuwasaba emerges as the frontrunner, boasting a potential capacity of 1244.94 MW across 16 projects currently licensed for construction. On a positive note, Kalikot, a district in mid-western Nepal, secures the third position with a capacity of 888 MW derived from four projects.

Upon categorizing all the projects, it becomes evident that those with a capacity exceeding 100 MW are predominant, constituting a total of 3967 MW. Projects falling within the 50-100 MW range collectively contribute 1848.729 MW. Specifically, Taplejung and Myagdi each house five projects within the 50-100 MW range. Conversely, Rasuwa and Taplejung accommodate four and three projects, respectively, possessing installed capacities surpassing 100 MW. Overall, the outlook is comforting, characterized by a significant number of sizable projects in the developmental pipeline.

Total power generation capacity from existing projects of Independent Power Producers (IPPs) and Nepal Electricity Authority (NEA) is a significant contributor to Nepal's energy landscape. As of recent data, IPPs significantly outpace NEA-led projects in meeting national demand. While IPP-led projects exhibit minimal import gaps, grid interruptions pose challenges, especially during high-demand periods. However, the combined efforts of IPPs and NEA contribute to the overall energy generation capacity of Nepal, laying the foundation for economic growth and development.

Addressing the energy gap

Operational projects in Nepal's energy sector are struggling to meet peak demand, necessitating imports from neighboring India. Analysis of the fiscal year 2079-80 data reveals a concerning decline in power generation during the driest period, from Mangsir/Poush to Baisakh/Jestha. To mitigate this shortfall, imports from India spike at approximately 680 MW during Chaitra and Baisakh. However, it's worth noting that exports are more prevalent during the wet season, highlighting seasonal fluctuations in energy demand and supply.

A closer examination of the energy table indicates a widening gap between energy requirement and availability in the wet season, offering an opportunity for revenue-generating exports. Conversely, in the dry season, import costs escalate as available power diminishes, posing economic challenges for Nepal's energy sector.

The predominant cause of this gap can be attributed to the reliance on run-of-river projects, where generation hinges on river water, making it susceptible to changes from global warming and unplanned development. Addressing this requires a firm power supply throughout the year to optimize cross-border energy export returns.

Independent Power Producers (IPPs) significantly outpace NEA-led projects in meeting national demand, yet grid interruptions remain a challenge, especially during high-demand periods like winter. Unplanned grid distribution, compounded by urbanization, exacerbates this issue. Transmission losses peak during the wet-min load season at 4.22 percent for 132KV and above, dropping to 3.57 percent during the dry-peak load season.

Addressing interruptions is paramount for ensuring reliable energy sources, particularly for the potential growth of the yet inactive industrial sector, crucial for leveraging national resources. However, without consistent supply security from NEA, the market may stagnate, impacting the economy and missing out on the benefits of increased power generation.

Solely focusing on exports is deemed economically shortsighted. Enhancing energy consumption capacity and replacing outdated fossil fuel dependencies from kitchens to industries are crucial steps. Future supply prospects appear promising, with potential three-fold increases from new mega projects being considered by stakeholders. This underscores the importance of strategic planning and collaborative efforts in ensuring Nepal's sustainable and resilient energy future.

Toward a sustainable future

Nepal's energy independence and sustainable development journey requires concerted efforts from government agencies, private sector stakeholders and international partners. While cross-border energy trade agreements signify progress, a broader strategy encompassing domestic consumption, alternative energy sources and infrastructure development is imperative for long-term sustainability.

As Nepal navigates its energy landscape, leveraging its hydropower potential while addressing challenges, the nation stands at a critical juncture in shaping its energy future. With strategic planning, innovative solutions and collaborative efforts, Nepal can realize its vision of a sustainable, resilient and prosperous energy sector.