The government’s Energy Consumption Growth and Export Strategy 2026 has set ambitious targets to transform Nepal into a major electricity producer and exporter over the next decade. But questions are emerging over how realistic those goals are, given long-standing structural and policy challenges in the energy sector.
The strategy aims to raise per capita electricity consumption from around 450 kilowatt-hours to 1,500 kilowatt-hours within a decade, while exporting up to 15,000 megawatts of power. It has also set a target of increasing total installed capacity to 28,500 MW by 2035.
The targets look achievable on paper. But the government needs to do a lot on the policy front, as persistent bottlenecks such as a lack of inter-government coordination and delays in issuing forest clearances have affected the timelines of several hydropower projects in the past.
A major concern is whether domestic demand can grow at the pace envisioned. The strategy relies heavily on shifting households and industries from fossil fuels to electricity. This includes phasing out subsidies on liquefied petroleum gas (LPG), replacing diesel-powered irrigation pumps, promoting electric cooking, and replacing coal-fired boilers in the industrial sector.
Past efforts to encourage electric cooking have not delivered tangible results. Unreliable supply, high upfront appliance costs and ingrained cooking habits have deterred consumers from shifting to electric cooking. Strong incentives for consumers and a consistent power supply could expedite the transition. The plan to divert subsidies currently given on LPG to incentivize consumers could help, as it would make LPG more expensive.
Electric mobility is another major pillar of the government’s plan to increase domestic consumption. The government plans to expand charging infrastructure and prioritize electric vehicles in public transport. While Nepal has seen a rise in private electric vehicle imports, scaling this up to buses and mass transit systems will require significant investment and policy coordination. Although small vans operate on some medium-distance routes, they cannot immediately substitute larger buses or cargo trucks.
Industrial electrification also faces challenges. The strategy proposes replacing coal-fired boilers with electric systems and offering preferential tariffs to energy-intensive industries. But businesses have historically been cautious about switching due to concerns over reliability and tariff stability. The government, however, has already moved ahead with the plan. Last week, it approved assistance worth $57m ($52m in concessional loans and $5m in grants) from the World Bank to provide concessional financing to industries replacing coal-fired boilers with electric ones.
Nepal installed capacity currently stands at around 4,000 MW. This means the country needs to generate an additional 24,500 MW over the next decade. While the generation target of 24,500 MW looks aggressive, it is not unattainable. Much of the planned capacity is expected to come from the private sector, which has shown strong interest in hydropower projects. While the private sector has successfully built small projects, it has not yet completed large-scale projects. The largest project handled by the private sector so far is the 341 MW Budhigandaki peaking run-of-the-river project, which has not yet entered the construction stage. Mega projects such as Budhi Gandaki and Upper Arun have faced years of delay due to political, environmental and financing issues.
Expanding transmission infrastructure in line with power generation will be another challenge for the government. Transmission line construction has always been difficult in Nepal due to factors such as land acquisition disputes, environmental clearances and funding gaps. If these issues persist, new power plants could be ready for generation but lack the transmission infrastructure needed to evacuate power.
Cross-border transmission infrastructure will be equally critical, as Nepal is targeting exports of 15,000 MW within a decade compared to around 1,200 MW now. A lion’s share of these exports is currently carried by the 400 kV Dhalkebar-Muzaffarpur cross-border transmission line. Construction of another 400 kV transmission line, the Butwal-Gorakhpur line, is ongoing with MCC funding. More such transmission lines linking Purnea, Bareilly, Motihari and Lucknow in India are in the planning phase. For the longer term, the Chilime-Kerung transmission line is under discussion for power trade with China. Observers, however, say a transmission line to China will be difficult to materialize due to technical and geopolitical challenges.
The government has proposed opening electricity trading to private players and moving towards a multi-buyer, multi-seller system. Such a system could create a more flexible market where private traders, industries and regional buyers directly negotiate electricity deals. This may help secure better prices and diversify buyers instead of relying mainly on the NEA. Private hydropower developers would also gain more options to sell electricity, ending their dependence on a single state buyer. However, this will again hinge on transmission infrastructure. Without major investment in transmission lines and substations, there is a risk of market liberalization remaining limited to paper.
Raising funds to implement all these plans—ranging from generation to transmission infrastructure—and finding markets for the electricity generated will be a Herculean task. The government has estimated the total investment requirement at $46.5bn. It has envisaged mobilizing funds from domestic resources, concessional loans and grants, investments from non-resident Nepalis, and energy bonds, among others. Investors will look for policy stability, bankable power purchase agreements and predictable returns. It remains to be seen how the government assures investors on these fronts.
