Nepal has ample renewable energy resources, which creates a feasible opportunity for hydrogen production. There is still a worldwide debate on the best medium for producing hydrogen, where solar and hydropower are the key competitors. For Nepal, achieving a balanced energy mix is essential, and solar energy has the potential to play a larger role in the 10 percent share of alternative energy in the overall energy mix. Nepal has significant solar energy potential, comparable to its hydropower resources, making it an attractive option for diversification. This article evaluates the pros and cons of hydrogen production using solar and hydroelectric energy, with a comprehensive techno-economic comparison to determine the most suitable approach for Nepal.

Solar potential

Various studies demonstrate that Nepal has a strong solar energy potential. The Investment Board Nepal (IBN) issued its ‘Energy’ report in April 2024 which states that Nepal receives sufficient solar radiation to produce between 3.6 and 6.2 units of electricity per square meter area. The daily solar energy intensity across Nepal's surface reaches an average of 4.7 kWh per square meter. Statistical data demonstrates that solar energy possesses great potential for implementation. According to a study by the Alternative Energy Promotion Center (AEPC) and the German Agency for International Cooperation (GIZ), the estimated total technical potential for solar energy production in Nepal is 432 GW (432,000 MW), which is tenfold higher than the economic and technical potential of hydropower (42,000 MW).

Current status

The renewable energy sector of Nepal exhibits rapid growth through solar energy development with eight new solar plants with a combined capacity of 90 MW starting operations in FY 2023-24. The nation remains committed to developing its power mix by establishing strategic Power Purchase Agreements (PPAs) to add more solar power capacity. The Nepal Electricity Authority (NEA) uses competitive bidding to acquire solar energy, setting a price ceiling of Rs 5.94 per unit. In a recent initiative, the NEA invited bids for 800 MW of solar projects and the evaluation and PPA signing for these projects will occur in FY 2024-25. The move seeks to strengthen Nepal's energy supply system by adding solar power to the current hydroelectricity dominance while ensuring power stability during winters when hydroelectricity generation decreases. 

The NEA intends to acquire 800 MW of solar energy in two years following the bidding period as smaller projects (under 10 MW) will start generating electricity within 18 months and larger projects will reach commercial operation in two years. According to the White Paper of the Ministry of Energy, Water Resources and Irrigation published on 8 May 2018, by capping solar contributions to 10 percent of the total installed capacity through Power Purchase Agreements (PPAs), Nepal is accelerating for a more balanced energy future, ensuring consistent electricity supply while embracing renewable sources to meet a rising demand.

Current status of hydropower

Nepal’s power sector depends fundamentally on hydropower operations. As of February 2025, the installed hydropower capacity in Nepal has reached 3,255 MW while economic potential exceeds 42,000 MW. The country aims to generate 28,500 MW of hydroelectricity by 2035, of which 17,000 MW will be exported to neighboring countries India and Bangladesh through eight international transmission lines as per an announcement from Minister for Energy, Water Resources, and Irrigation, Dipak Khadka. 

Nepal’s commitment to electricity exports will not prevent it from maintaining surplus electricity that can be efficiently used for hydrogen production. Hydropower provides a dependable source of electricity for hydrogen electrolysis at scale because its energy output remains stable, unlike solar power which faces daily and seasonal changes. This consistent nature of hydroelectric power provides a solid base for Nepal’s hydrogen economy development.

Comparison of solar vs hydroelectric hydrogen production

The global competition for green hydrogen production is accelerating, so renewable energy sources serve as the core solution and solar and hydropower are dominant leaders in this transition. Each offers distinct advantages and faces unique challenges in this evolving landscape. Multiple important factors can be used to conduct an extensive analysis.

• Energy generation stability

Hydropower delivers uninterrupted power, which makes it a better hydrogen production source than solar energy because solar power depends on sunlight availability and shows intermittent fluctuations. The continuous operation of hydropower systems runs 24/7 to deliver steady energy streams. Solar energy generation operates within daylight hours with a seven hours daily average in Nepal, forcing the implementation of storage units or backup power for stable hydrogen production.

• Land use efficiency

The competition between these power systems depends heavily on how efficiently land resources are utilized. Each megawatt of solar PV farm needs 0.02 square kilometers of land space for installation, thus presenting challenges in Nepal's geographically restricted areas. Hydropower requires approximately 0.1 km² per MW and helps to capitalize the existing water resources and infrastructure. A strategic solution involving NEA land at hydro project locations for solar power installations would create a hybrid energy system that maximizes both technologies for green hydrogen production.

• Project timeline and operational lifespan

Solar PV and hydropower projects differ significantly in terms of construction duration, capacity range and operational lifespan. The installation period for Solar PV projects having a capacity below 10 MW in Nepal spans from six months to one year but projects between 10 MW and 50 MW require one to two years to complete. The duration of operation for these projects extends to 25 years from the Power Purchase Agreement date according to existing legal provisions but lacks any provisions for further extensions. In contrast, the duration for constructing hydropower projects depends on project size along with design complexity. 

Construction practices in Nepal indicate that projects without tunneling under 20 MW require a two-year duration while projects with tunneling need 2.5 years for completion. Projects with capacities between 50 MW and 100 MW need between 3 and 4 years to build, yet larger installations that surpass 100 MW require five years to complete because they present additional construction challenges. Hydropower plants exist for 50 to 100 years when maintenance is carried out correctly. Private sector projects receive their first 35-year operating license from government authorities, which can extend the authorization for another 15 years. The comparison of solar and hydropower shows that solar delivers swift implementation while hydropower maintains enduring operational capabilities, thus both systems represent fundamental elements for Nepal’s developing energy sector.

• Production efficiency

The capacity factor of a power plant represents the ratio of actual energy output to its maximum potential. A higher capacity factor ensures stable and predictable electricity supply that supports uninterrupted operation of hydrogen electrolyzers. For comparison, a 1 MW solar PV system operating at 20 percent capacity factor would generate 1,752 MWh annually to produce 35,040 kg of hydrogen when electrolyzed at 70 percent efficiency. In contrast, a 1 MW hydroelectric plant with 50 percent capacity factor produces 4,380 MWh of annual energy output, which results in hydrogen production of 87,600 kilograms. This means that hydropower can produce approximately 2.5 times more hydrogen per MW than solar power. The large-scale production of hydrogen through hydro-based methods proves more efficient in Nepal because hydropower constitutes a major portion of its energy mix. Hydropower benefits from solar energy integration since it provides additional flexibility and strengthens the electricity supply system.

• CAPEX

Capital investment is a key factor in selecting a renewable energy pathway for hydrogen production. Solar power plant installations in Nepal cost between Rs 60m-Rs 70m per MW but hydropower construction requires approximately NPR 80m per MW before adding the cost of electrolyzer units. The price gap between hydroelectric and solar-based hydrogen production indicates that hydropower stands as a more economically efficient option for big projects across Nepal because it delivers extended operational time and dependable output. However, solar energy remains an attractive option for diversification and hybrid energy solutions.

• OPEX

For hydroelectric power plants, the annual operation and maintenance expenses amount ranges from one percent to 2.5 percent of initial capital investment to cover turbine maintenance alongside dam maintenance and sediment removal. In contrast, solar power plants incur an initial O&M cost of two percent of the capital cost in the first year and then increase annually by five percent of the initial two percent. The maintenance expenses include operations on the panels and inverters in addition to the monitoring system maintenance. The initial maintenance costs of solar power are lower, but future expenses will rise because regular servicing becomes essential to preserve operational efficiency.

Cost comparison of hydrogen production

The cost of hydrogen production varies significantly depending on the energy source and country-specific strategies. The government of Chile intends to achieve annual green hydrogen production of 160m tons by 2050 through its extensive hydropower resources. The National Green Hydrogen Strategy of Chile envisions that the country will achieve 5 GW electrolyzer capacity by 2025 and 25 GW by 2030 with the goal to lower production costs to $0.8–$1.1 per kilogram by the end of the decade. 

Meanwhile, the United Arab Emirates (UAE) uses its extensive solar resources to become a dominant global player in solar-powered hydrogen manufacturing. Through its renewable energy flagship Masdar, the UAE plans to grow hydrogen market share globally to 25 percent by 2030 and increase its annual production to 1m tons. The UAE has established a strategy to decrease production expenses for hydrogen to $1-$2 per kilogram by 2030. The evaluation demonstrates that hydro-based hydrogen production in Chile generates lower production expenses yet solar-powered hydrogen from the UAE establishes itself as a competitive and scalable option for international hydrogen markets.

Pathway to green hydrogen leadership

Nepal can establish itself as a regional leader in green hydrogen production through its extensive hydropower resources combined with solar power integration, which creates a strong and resilient energy combination. Hydropower provides an efficient and cost-effective production method for large-scale hydrogen generation because it delivers stable renewable energy, which supports long-term sustainability and energy security. The combination of solar energy with hydropower enables better power flexibility and decentralizes hydrogen producing operations. Strategic investments, policy support and international collaborations will be crucial in unlocking Nepal’s hydrogen potential thus positioning the country as a key player in the global green hydrogen economy.