Nepal has set ambitious goals to transform its energy sector, aiming to produce 28,000 megawatts (MW) of electricity by 2035. This initiative aligns with agreements to export 10,000 MW to India over the next decade and to supply electricity to Bangladesh, reflecting Nepal’s commitment to becoming a significant energy exporter.
However, achieving these targets presents substantial challenges, including securing the estimated USD 46.5 billion required for generation and transmission infrastructure, addressing policy bottlenecks, and overcoming logistical hurdles such as the shortage of explosives critical for hydropower construction.
In light of these developments, The DMN News engaged with Ganesh Karki, President of the Independent Power Producers’ Association Nepal (IPPAN), to discuss Nepal’s hydropower potential, the capital needed for mega projects, and the challenges facing the sector.
Karki emphasized the necessity for policy reforms, improved financial support, and enhanced infrastructure to realize Nepal’s energy ambitions. Excerpts:
Hydropower is often seen as a success story in Nepal. What are the major challenges in hydropower generation in the country?
Nepal has made significant progress in the hydropower sector. The country’s energy journey began with the establishment of the Pharping Hydropower Project in 1911 AD, which successfully achieved a generation capacity of 500 KW. Following the establishment of multiparty democracy in 1990, the energy sector was opened up for investment. Subsequently, from 2001 onwards, commercial generation began to develop, initially with a generation capacity of 252 MW. Today, the overall generation capacity has grown to 3,500 MW, with the private sector contributing 2,800 MW and the government producing the remaining 700 MW. Therefore, the private sector has played a crucial role, contributing approximately 80 percent of the sector’s growth despite facing numerous challenges.
Some of the major opportunities in hydropower generation in Nepal are huge energy market in neighbouring countries (India & Bangladesh), many investment opportunities, and business opportunities (Trade, Consultant, Contractor, Manufacture, Suppliers etc.), Green financing, Carbon market, Security in projects (Power Development Agreement being given by the government) etc. Similarly, some of the challenges in hydropower generation in Nepal are lack of Investment, political risk (Unstable government and policies), Climate Change risk and technical risks, among others.
Private sector is calling for ending the monopoly of state-owned Nepal Electricity Authority (NEA) in selling power to India. Why?
Generally, the government focuses primarily on policy making, while the private sector is tasked with implementation. In Nepal, the private sector is solely responsible for energy generation. The government should refrain from involving itself in business activities, as this has led to confusion and inefficiency. The state-owned Nepal Electricity Authority (NEA) is currently involved in generation, transmission, distribution, trade, and grid management, which creates a conflict of interest. It is crucial that each of these functions be handled separately and in a competitive manner. The energy sector should operate professionally and independently.
The trade between Nepal and India is influenced by geopolitics, with India treating energy as a strategic product rather than a commercial one. If the private sector were involved, the energy trade would become a purely commercial activity, eliminating the influence of geopolitical factors and fostering smoother and more cooperative business relations between Nepal and India. Globally, the private sector plays a central role in the energy business, and in Nepal, the private sector is working to implement similar practices and create opportunities in the energy sector.
Under the leadership of IPPAN, MoUs have been signed between IPPAN and Indian energy companies. As a result, 4 to 5 companies have been registered in Nepal for power trading, but they have not yet received necessary licenses. The NEA has refrained from signing Power Purchase Agreements (PPAs) due to concerns over energy security, and it has yet to grant PPAs to Nepali private sector companies. As a result, approximately 12,000 MW of energy is still awaiting PPA approval. If the private sector had the appropriate trade licenses, they would be able to trade energy more freely and efficiently.
Is there enough capital available in Nepal’s banking sector to fund hydropower projects in Nepal? What support do Nepali private sector need to reach out to international financial institutions to develop large projects?
The government’s goal is to generate approximately 28,500 MW of hydro energy, but achieving this requires an investment of around 46.5 billion USD, as outlined in the government’s energy roadmap. Given that Nepal’s banking sector is unable to provide the required funding, it is essential to attract investment from the private sector and foreign direct investment (FDI) to meet this target.
To generate 28,500 MW of capacity, an estimated 50 billion USD will be needed. Such amounts are not currently available within local banks and financial institutions of Nepal, necessitating significant foreign direct investment. Therefore, it is crucial to offer investment opportunities to foreign companies in Nepal.
The government should ensure the security of investments, provide guarantees for returns on investment (ROI), and assure the stability of policies. Hence, it is important to offer guarantees on profits based on the investments made.
How is climate change affecting Nepal’s hydropower sector, particularly in terms of water availability and seasonal flow variations?
The lack of consistent rainfall in the country is increasingly having significant effects, which may lead to various challenges. Climate change is profoundly impacting Nepal’s hydropower sector, particularly with regard to water availability and fluctuations in seasonal river flows. The retreat of glaciers is reducing the long-term water supply; although melting glaciers initially increase river flows, they ultimately result in less water for hydropower generation. Furthermore, Glacial Lake Outburst Floods (GLOFs) are becoming more frequent, posing risks to infrastructure and downstream communities.
Shifting monsoon patterns have made rainfall more unpredictable, complicating water management for hydropower plants. Similarly, reduced snowfall in the Himalayas results in less snowmelt during the dry season, reducing water availability when it is most needed. These changes have led to more extreme variations in river flows such as flooding during the monsoon and droughts in the dry season making hydropower generation increasingly unreliable.
To adapt, Nepal’s hydropower sector requires improved climate risk management, enhanced early warning systems, and more flexible infrastructure capable of handling both floods and droughts. A diversified energy mix, including run-of-river systems and storage solutions, will also help address these challenges. Future hydropower projects should be designed with disaster risks in mind.
Extreme weather events like floods, landslides, and glacial lake outburst floods (GLOFs) are increasing in Nepal. How are independent power producers coping with these risks?
Independent power producers (IPPs) in Nepal are increasingly confronted with risks arising from extreme weather events such as floods, landslides, and Glacial Lake Outburst Floods (GLOFs). To address these challenges, a range of strategies can be as the following:
- To mitigate flooding and ensure sustainable hydropower development, it is essential to conduct future risk and climate change assessments, with significant investments required.
- Hydropower projects must be designed with a focus on potential risks, taking into account the probability of various challenges. In response to these risks, the government should engage with the private sector to discuss and provide solutions or facilities, as substantial investment is needed.
Many IPPs are partnering with the government and international organizations to establish early warning systems for floods and GLOFs, enabling faster response times and improved risk management. Some IPPs are diversifying their portfolios by investing in power generation sources and minimizing the impact of unpredictable weather patterns. IPPs are also collaborating closely with local communities and the government to strengthen disaster preparedness and ensure the long-term sustainability of their projects.
Through these proactive measures, IPPs in Nepal are working to reduce the impact of extreme weather events on their operations and enhance the resilience of energy production. The private sector is currently awaiting the facilitation of supportive policies by the government.
With shifting monsoon patterns and unpredictable river flows, do you foresee any changes in how Nepal should plan its future hydropower projects?
The government has yet to implement a comprehensive policy to promote hydropower, which has led to the private sector experiencing losses. As climate change begins to affect the energy sector, the government has not yet introduced a dedicated policy to address these challenges. It is crucial for the government to develop and implement a policy that fosters an environment conducive to private sector growth and investment.
Given the shifting monsoon patterns and unpredictable river flows, there will certainly need to be adjustments in how Nepal plans its future hydropower projects. The traditional reliance on consistent seasonal flows is no longer sustainable due to the impacts of climate change. Moving forward, hydropower projects should prioritize flexible designs that can adapt to varying water levels. In addition, integrating early warning systems will be essential. These systems can provide real-time data on river flows, weather conditions, and potential risks such as flooding or landslides, enabling better preparation and risk management. Such systems would allow hydropower plants to adjust their operations proactively to mitigate damage during extreme weather events. This process has already begun.
There must also be a stronger emphasis on building climate-resilient infrastructure, with plants designed to withstand both high and low flow conditions. This could involve incorporating adjustable turbines, flood-resistant dams, and improved safety protocols. These adaptive strategies will be vital to ensuring that Nepal’s hydropower sector remains sustainable and efficient in the face of changing weather patterns.
Given Nepal’s ambition to export surplus hydropower to India and beyond, what should be Nepal’s approach while entering into cross-border energy trade agreements with India and Bangladesh?
In line with the Nepal government’s roadmap to export 15,000 MW of electricity to neighbouring countries, the energy development plan targets 10,000 MW for India and 5,000 MW for Bangladesh. An agreement has already been signed with India, and trade between the two countries has commenced, including during the wet season. Currently, an agreement is in place with Bangladesh for the export of around 40 MW. As Nepal continues to generate surplus electricity, it is essential to engage in energy trade. To facilitate trade with both India and Bangladesh, dedicated transmission lines are crucial. Additional infrastructure is needed for India, and a dedicated transmission line is required to export electricity to Bangladesh. Involving the private sector in the construction process would significantly ease this process.
Clear regulatory frameworks are vital for the success of such initiatives. Nepal should focus on aligning its energy policies and regulations with those of India and Bangladesh to ensure seamless integration of the power grids, establish fair tariffs, and resolve any potential legal or technical challenges. This will foster trust and stability in trade agreements.
Revenue sharing must also be a key consideration in any agreements. Nepal should ensure it receives a fair return for the hydroelectric energy produced. By prioritizing infrastructure development, regulatory alignment, equitable revenue sharing, and sustainability, Nepal can build strong, enduring energy trade relationships with India and Bangladesh, promoting both economic growth and regional energy security.
The construction of transmission lines is lagging far behind while compared to the construction of hydro projects. How do you see the role of the private sector in addressing this issue?
The private sector plays a critical role in addressing the delays in transmission line development in Nepal. While hydropower projects are expanding rapidly, the lack of sufficient transmission infrastructure remains a significant barrier to efficiently delivering energy to consumers.
At present, projects are being developed but delays in the construction of transmission lines have led to losses for the private sector. Allowing private companies to take charge of transmission line construction would mitigate issues related to energy wastage and ensure that electricity is generated and delivered on time, reducing the current losses due to the absence of adequate transmission lines.
Firstly, the private sector can inject much-needed investment and innovation into accelerating the development of transmission lines. Through Public-Private Partnerships (PPPs) or Build-Operate-Transfer (BOT) models, private companies can invest in and manage the construction of essential transmission infrastructure, ensuring it aligns with the rapid growth of hydropower plants. Secondly, the private sector can enhance efficiency by applying advanced project management techniques, minimizing delays and reducing the costs often associated with large infrastructure projects. Their expertise in the rapid deployment of infrastructure can significantly expedite the development of transmission lines.
Collaboration between the public and private sectors can streamline regulatory processes, address land acquisition challenges, and ensure that transmission lines are designed and implemented to meet both energy generation and consumption requirements. Involving the private sector is crucial to bridging the gap between hydropower generation and transmission infrastructure, thus ensuring a more reliable and efficient energy distribution system across Nepal.
Apart from hydropower, should Nepal’s energy mix include more solar and wind energy to mitigate risks from climate change? How do you see the role of independent producers in this diversification?
Nepal currently has less than 5 percent of its energy projects sourced from solar energy, with more than 95 percent reliant on hydropower as solar and hydro are complementary to each other. The government has recently adopted a mixed energy policy, which has facilitated the progress of several solar projects, with approximately 14 projects underway. However, the development of wind energy is progressing at a slower pace. It is crucial for Nepal to diversify its energy mix to incorporate more solar and wind energy, particularly as a strategy to address the challenges posed by climate change. While hydropower will continue to be a primary energy source, its dependence on seasonal rainfall and water availability exposes it to risks from changing weather patterns, glacier retreat, and extreme weather events.
Independent power producers (IPPs) are poised to play a key role in this diversification. Having already demonstrated their capacity to invest in renewable energy projects, IPPs are well-positioned to drive innovation and expansion in the solar and wind sectors. Through private investment, IPPs can lead the development of these projects, bringing the necessary technical expertise and flexibility to swiftly adapt to the evolving energy landscape.
So, how do you see the role of the government in the development of the energy sector?
It is essential for the government to involve private companies in all aspects of the energy sector, including generation, production, distribution, and trade. If the government assumes sole responsibility for generation and production, the future of Nepal’s energy sector could be at risk. By providing opportunities for the private sector in transmission, distribution, and trade, the government can encourage investment and development of projects. To facilitate this, it is crucial for the government to adopt clear and private sector-friendly policies.
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