Nepal is often described as an energy-rich country. Its rivers descend rapidly, carry immense force, and could, at least on paper, power industries, irrigate farms, preserve harvests, and anchor a modern economy. Energy is a core pillar of prosperity, shaping productivity, scale, and living standards across the economy.Nepal’s experience, however, is deeply paradoxical. Despite its exceptional hydropower endowment, it remains among the world’s lowest energy-consuming and electricity-producing economies.This contradiction is not incidental. It lies at the center of Nepal’s stalled structural transformation.
Nepal’s per-capita energy consumption (cooking, transport, and industrial use) is roughly 520 kilograms of oil equivalent per year, about one-fifth of the global average. More revealing than the low level is the composition of that energy use. Traditional biomass (firewood, agricultural residue, and animal dung) still supplies nearly two-thirds of total consumption. Electricity (despite decades of hydropower optimism) accounts for only about ten percent, with the remainder coming from imported petroleum. By electricity use alone, Nepal ranks even lower than on total energy use.
Nepal’s energy problem is often described as one of low production. That is true, but it understates the challenge. The deeper issue is that electricity has yet to play a central role in production, investment decisions, or the organization of economic activity. Energy demand remains marginal in economic function. Until that changes, prosperity will remain elusive, regardless of how many megawatts are announced.
Too Little Production
Nepal’s recent energy narrative emphasizes progress. Installed capacity has increased, chronic load-shedding has largely disappeared, and electricity exports have begun. These improvements are real. Less than a decade ago, the country endured up to fourteen hours of daily blackouts, and even charging a mobile phone was uncertain. That experience should not be forgotten.But progress from an extremely low base should not be mistaken for adequacy. Nepal remains among the world’s lowest producers of electricity on a per-capita basis, not merely a low consumer. Per-capita electricity production is roughly one-third of India’s and about one-twentieth of China’s. For a country long described as hydropower-rich, this represents a fundamental failure of conversion.
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Electricity has arrived late, slowly, and at a scale far below what Nepal’s endowment would reasonably suggest. Over the past three decades, had the country moved decisively, it could today be producing far more than the roughly 3,600 megawatts currently available. The appropriate benchmark is therefore not improvement from scarcity, but what could plausibly have been achieved given Nepal’s rivers, geography, and development needs. These delays have not been costless. Each year of postponed generation has meant foregone output, missed jobs, and lost learning. Abundance left unharnessed is not neutral; it is a loss.
Low production volume is not the only constraint. Electricity has also not been produced cheaply or predictably enough to anchor industrial growth. Hydropower is often described as low-cost energy, but in Nepal that advantage has been eroded by long construction delays, high financing costs, regulatory uncertainty, transmission bottlenecks, and seasonal underutilization. While operating costs are low once projects are completed, total system costs remain elevated. Electricity produced at high cost and under uncertainty does not function as an engine of transformation; it becomes a constraint that firms learn to work around, as has been the case in Nepal.
Even Less Productive Use
Low production tells only part of Nepal’s energy story. The deeper constraint is not generation alone, but the absence of domestic demand capable of absorbing electricity at scale. Nepal is trapped in a low-level energy equilibrium in which neither electricity supply nor demand is strong enough to energize the economy. Even the limited electricity that is generated finds few productive uses; demand remains weak because production has not reorganized itself around power. Large parts of the economy still rely on traditional biomass—clear evidence of subsistence rather than structural transformation. The supply side remains too cumbersome to invite large-scale investment, while demand is too weak and fragmented to justify expansion. Each side reinforces the other, leaving power peripheral to economic life.
This matters because electricity is a general-purpose input. Across countries, rising electricity use is closely associated with industrial depth, firm scale, mechanized agriculture, modern services, and sustained income growth. Energy enables capital, labor, and technology to combine at scale. In Nepal, hydropower should have delivered a double dividend: turning abundant water into cheap electricity and electricity into economic growth.That virtuous cycle has not materialized.Electricity has yet to become a routine input into manufacturing, farming, or transport. Manufacturing remains small and fragmented. Agriculture is still largely rain-fed and labor-intensive. Transport is barely electrified. As a result, even where electricity is available, it does not function as a backbone of production.
This outcome reflects missing complements rather than choice. Economic activity remains too limited to generate strong demand for electricity. Logistics are weak, skills mismatched, and urban markets thin. Firms respond rationally by remaining small and defensive rather than investing for scale. Labor has not shifted decisively into electricity-using sectors, and capital has not reorganized around electricity as a central input.
Nepal thus faces an energy paradox. Electricity is available, but it is not embedded where productivity is created. Until electricity is systematically integrated into farms, factories, and firms—supported by complementary investments in finance, skills, logistics, and markets—prosperity will remain elusive, regardless of how many megawatts are announced.
Breaking the Low-Level Equilibrium
Recently, Nepal has exported electricity to India and Bangladesh, often celebrated as proof of success. Regional power trade should generally be encouraged, but in this case the exports reveal Nepal’s economic weakness rather than economic strength. Exports coexist with extremely low domestic electricity production and use, a combination that signals not maturity but incompleteness. Exports should follow domestic electrification and industrial deepening, not precede them. Otherwise, Nepal risks exporting power before it has learned how to use it productively at home. Structural transformation occurs when electricity reorganizes domestic production—raising productivity, enabling scale, and drawing labour and capital into higher-value activities—not simply when surplus power is sold across the border.
Electricity transforms economies only when it reorganizes production. Yet decades of hesitation, fragmented decision-making, and institutional weakness have turned Nepal’s energy abundance into constraint. What should have been a coordinated national mission has too often become a sequence of isolated efforts. Until power is embedded in farms, factories, and firms, Nepal will continue to announce megawatts without achieving prosperity.Energy abundance becomes developmental only when it is treated as economic infrastructure rather than a sectoral achievement.
Nepal’s core challenge is not choosing between production and use, but breaking the low-level equilibrium that keeps both suppressed. Growth in electricity supply and growth in productive demand must advance together, each reinforcing the other. Without that coordination, neither exports nor incremental capacity additions can deliver transformation. That means prioritizing reliability, pricing, and sectoral electrification in irrigation, agro-processing, transport, and urban industry over headline capacity alone.
The lamp cannot remain unlit; let it shine for prosperity.
(The author holds a PhD in Economics and writes on economic issues in Nepal and Canada. He can be reached at acharya.ramc@gmail.com)
