Green hydrogen has emerged as one of the most promising energy carriers for achieving net-zero carbon targets globally in recent years. Green hydrogen can address two immediate challenges in the energy transition: decarbonizing hard-to-abate sectors and ensuring energy storage for intermittent renewable sources with its ability to store renewable electricity in chemical form. As a signatory to the Paris Agreement and participant in recent COPs, Nepal has pledged to achieve net-zero emissions by 2045 and become carbon negative thereafter. The country’s updated Nationally Determined Contribution (NDC 3.0) emphasizes scaling up renewable energy and exploring low-carbon technologies to meet its climate goals.
With abundant hydropower potential, year-round clean water from the Himalayas and seasonal mismatches between electricity supply and demand, Nepal is well-positioned to use excess hydropower for hydrogen production. By 2035, this country intends to produce 28,500 MW of electricity power (15,000 MW to export and 13,500 MW to be used locally), which leaves a possible surplus of up to 20,919 MW. This surplus could produce around 3m tons of green hydrogen annually, meeting up to 1.7–2.2 percent of the projected global demand of 150–195m tons in 2035. This represents a major opportunity to reduce dependence on imported fossil fuel, enhance energy security and establish a new green industry. However, economic viability assessment of the proposed practice is essential in transitioning potential into practice. Thus, this article analyses the economic viability of green hydrogen production in Nepal.
Economic assessment
The economic viability of green hydrogen production in Nepal depends on both the capital investment (CAPEX) required to build the facility and the operational expenditure (OPEX) for its ongoing operation. The total CAPEX of the Green Hydrogen Production Plant is usually divided into several major subsystems. The electrolyzer system represents the most significant portion of the total CAPEX (about 45 percent). The system includes stacks, power electronics and control units. The storage and compression of Hydrogen comprises approximately 20 percent in the form of high-pressure vessels, compressors and safety systems. Balance-of-plant (BoP) requires about 15 percent of the total, which includes piping, valves, instrumentation and electrical interconnections. The water purification system constitutes approximately five percent, which is crucial in producing high-purity deionized water in electrolysis. The remaining 15 percent is land acquisition and infrastructure development, which includes foundation, civil works, access roads and utility connections.
The most significant component of the operation expenditure (OPEX) of such a facility is the electricity cost, comprising 65-70 percent of the annual operating cost, since the electrolysis process is energy-intensive and the cost of electricity is a significant factor affecting the price of hydrogen. Maintenance covers about 10 percent of the total, including regular inspection, component changes and system service. Human resources cost account for about eight percent, including plant operators, engineers and administrative staff. The remaining 12-17 percent will be classified under miscellaneous expenses that will incorporate insurance, safety compliance, spare parts inventory and miscellaneous overheads.
For instance, considering that the Government of Nepal has already waived customs and income tax on hydrogen production equipment for the next five years as per the fiscal budget of FY 2025-26, and that the cost of each plant component (electrolyzer, storage, balance-of-plant, purification systems, land and infrastructure) generally aligns with global benchmarks, a 500-kW green hydrogen plant in Nepal is estimated to require a total CAPEX of about Rs 500m ($3.67m) with an annual OPEX of around Rs 65m ($0.477m). A 1 MW facility would cost approximately Rs 900m ($6.62m) in CAPEX and Rs 135m ($0.99m) in OPEX. In comparison, a 2 MW green hydrogen production plant with an integrated oxygen recovery and bottling facility is estimated to require a total CAPEX of Rs 1.63bn ($11.98m), with an annual OPEX of Rs 255m ($1.87m), where Rs 200m ($1.47m) is solely covered by electricity cost. Thus, the CAPEX–OPEX profile highlights the importance of securing low-cost renewable electricity, optimizing system efficiency and monetizing by-products for Nepal to establish a cost-competitive green hydrogen sector. The relatively high proportion of electrolyzer and storage costs in CAPEX suggests that technological advancements and economies of scale will be critical to cost reductions over the coming decade.
The construction period for green hydrogen projects depends on plant capacity, supply chain lead times and site conditions. In Nepal’s context, a 500-kW plant can typically be completed within 9–12 months, including site preparation, procurement and commissioning. A 1 MW plant may require 14–18 months, while a 2 MW facility, given its greater storage, compression, and civil work requirements, can take 18–24 months. Streamlining regulatory approvals and integrating the hydrogen facility with existing hydropower plants can reduce timelines by up to 20 percent.
Economic viability
Numerous countries and entities are trying to lower the price of green hydrogen. As a new and capital-intensive form of technology, it must be made less expensive to scale up. On a per-kilogram basis, 60–70 percent of the production cost is attributed to electricity, 0.5–1 percent to water, 8–15 percent to CAPEX and 2–4 percent to other operational expenses. Currently, the worldwide price to generate green hydrogen is between $3 and $8 per kg, whereas in 2035 it is estimated to be $1.3-$2.3 per kg. Since Nepal has access to cheap electricity and clean water, it is estimated that the production costs will be between $1.2-$1.8 per kg by 2035, making Nepal’s hydrogen very cost-competitive.
A detailed cost analysis indicates that a 2 MW electrolyzer represents the optimal scale for Nepal’s initial green hydrogen projects, producing hydrogen at approximately Rs 1,812/kg ($13.32/kg) based on current electricity rates (Rs 11/kWh, i.e. $0.08/kWh). This mid-range capacity strikes a critical balance—delivering economies of scale without the prohibitive costs of larger plants, as costs initially decrease from small to medium scales, rise slightly between 2-5 MW due to balance-of-system complexities, and then drop again for 10+MW capacities. With a manageable capital investment of around Rs 1.64bn ($12.05m), the 2 MW model offers commercial viability while remaining scalable for future expansion. Furthermore, if subsidized electricity rates (Rs 3/kWh, i.e. $0.02/kWh) are applied, production costs could fall to ~Rs 1,372/kg (~$10.08/kg) and at an intermediate tariff of
Rs 6/kWh ($0.04/kWh), production costs for a 2MW plant are estimated at Rs 1,537/kg ($11.3/kg), reinforcing Nepal's potential to establish a cost-competitive green hydrogen industry that aligns with domestic energy goals and emerging global market opportunities.
Land requirement and site selection
The establishment of green hydrogen production facilities in Nepal requires careful consideration of land availability, terrain, accessibility and proximity to essential resources. For electrolysis plants, land is primarily allocated to the electrolyzer building and power conditioning units (25 percent of total area), hydrogen storage and compression facilities (20 percent), oxygen recovery and bottling units (15 percent), balance-of-plant (BoP) systems including piping and workshops (15 percent), water treatment and purification systems (10 percent), and access roads, green buffers and safety exclusion zones (15 percent). Based on global benchmarks, a 2 MW green hydrogen production facility typically requires around 1.2 acres (~4,856 m²), which could be arranged as 70 m × 70 m.
In the context of Nepal, site selection should be nearer to the large hydropower plants to cut down on transmission losses and infrastructure costs. Sites around Bagmati, Gandaki and Koshi provinces, which already have or are planning to have large-scale hydropower plants, seem to be the most appropriate. Areas near the transmission substations, accessible roads for transporting heavy equipment and water sources are also critical. The site should not be near dense population areas so that the high-pressure hydrogen storage that would be used would not pose too many safety issues. Integrating the hydrogen plants with other hydropower plants or as extensions to existing ones would make the issues of land acquisition simpler and would ensure a constant supply of electricity, especially during low-demand periods when surplus electricity from hydropower is available.
Oxygen as a by-product
Electrolysis produces oxygen alongside hydrogen (8 kg of oxygen per 1 kg of hydrogen). This by-product can be monetized, improving project economics. For instance, a 2 MW plant operating for 8,000 hours annually equates to over 6,376 kg of oxygen daily. Nepal currently operates around 25 oxygen plants producing 80,000–85,000 kg per day, serving both medical (60 percent) and industrial (40 percent) sectors. The additional supply from green hydrogen projects could strengthen domestic oxygen security, particularly during health emergencies such as the COVID-19 pandemic, when oxygen shortages became critical. This oxygen can be compressed and bottled for sale to hospitals, industries such as steel and glass manufacturing and water treatment facilities. A dedicated 2 MW by-product oxygen production facility would require a CAPEX of about Rs 145m, producing 6,376 kg of oxygen per day, equivalent to approximately 744 high-pressure medical-grade cylinders daily, where each cylinder has a volume of 40 liters filled at 150 bar pressure (equivalent to 6,000 liters at atmospheric pressure). At a market price of Rs 600 per 40-liter cylinder, this output could generate annual revenue of around Rs 162m. The oxygen revenue stream can significantly offset hydrogen production costs, potentially reducing the effective cost per kilogram of hydrogen by 5–10 percent depending on market demand and selling prices.
Conclusion
Nepal has significant potential to establish a green hydrogen industry due to its abundant hydropower resources, clean water access and increasing commitment to decarbonization. The economic assessment for Nepal’s green hydrogen production suggests that the country’s first commercial pilot project could be implemented at scales of 500 kW, 750 kW, 1 MW, or 2 MW, out of which the 2 MW facility stands out as the optimum and most economically viable choice so far. The output potential of a 2 MW facility is about 800 kg of green hydrogen daily. If all production is consumed, the project would achieve an internal rate of return (IRR) of 10–11 percent and a payback period (PBP) of 6–8 years under varying electricity tariffs from Rs 3 ($0.02) to Rs 11 ($0.08) per kWh.
The most immediate application of such a pilot project would be establishing a green hydrogen–fueled transportation ecosystem in Nepal. With a daily hydrogen production target of 800 kg, approximately 20 fuel-cell buses could be operated daily. This would replace diesel consumption and avoid around 1,956 tonnes of CO₂ emissions yearly, contributing to roughly 0.041 percent of Nepal’s total annual transport sector CO₂ emissions. While the electricity prices currently render the production prices of small to mid-scale plants to be on the higher side, these can be lowered substantially with the right subsidy policies, scaling up of technology and monetization of by-products. A phased approach, starting with strategically located 2 MW facilities near hydropower plants, can validate technical performance, establish market links and create a skilled workforce. As global costs decline and demand rises, Nepal can scale production to tap into regional export markets, particularly India, Bangladesh and other South Asian nations transitioning to cleaner energy.
Green hydrogen not only offers a pathway to reduce Nepal’s fossil fuel imports and improve energy security but also positions the country as a potential exporter in a rapidly expanding global market. With supportive policies, public–private partnerships and infrastructure investments, green hydrogen could become a pillar of Nepal’s energy strategy, contributing to economic growth and the nation’s commitment to achieving net-zero emissions by 2045.
