KATHMANDU, May 14: The ruling Rastriya Swatantra Party (RSP)-led government has unveiled an ambitious energy roadmap aimed at transforming Nepal into a regional electricity powerhouse, targeting 15,000 MW of installed capacity within five years and 30,000 MW within a decade.
But energy economists, hydropower experts and market analysts are warning that the strategy—if centered primarily on expanding generation—could deepen Nepal’s economic vulnerabilities rather than deliver long-promised prosperity.
According to experts familiar with Nepal’s evolving energy market, the country’s biggest challenge is no longer electricity generation itself, but whether Nepal can profitably consume, store or export the electricity it plans to generate.
Analysts argue that Nepal’s electricity sector faces a structural supply-demand imbalance. While generation continues to grow, corresponding growth in domestic electricity consumption remains weak and export markets are increasingly uncertain—both from export quantity and price perspectives. Further, investments in transmission lines and upgrading local distribution capabilities has been lacking, and needs to be prioritized.
“Nepal’s primary problem is not generation capacity anymore,” said former minister and renowned energy expert Dipak Gyawali. “The real issue is the right generation capacity, increasing domestic demand and accelerating transmission line construction.”
Experts argue that if Nepal keeps building standard run-of-river and even standard peaking run-of-river projects without addressing those fundamentals, it is digging a deeper economic hole.
Nepal’s rivers fluctuate dramatically between monsoon and dry seasons, with water flow varying anywhere between 10 to 20 times. This creates massive seasonal instability in electricity generation.
During the wet season, Nepal produces surplus electricity. During the dry season, however, generation collapses and the country still imports electricity from India. Simply adding generation capacity that adds to excess supply during the wet season and does little to address generation shortfall during the dry season does not solve Nepal’s supply demand imbalance.
Critics say the government’s fixation on achieving the headline target of “15,000 MW” ignores this fundamental weakness. “What Nepal needs is not simply more hydropower plants,” said another energy expert who requested anonymity. “Nepal needs more major storage projects and projects with three to six hours of peaking storage.”
Currently, the Kulekhani Hydropower Project remains Nepal’s only major storage hydropower project. A few Peaking Run-of-River (PRoR) projects including Upper Tamakoshi, Upper Trishuli and Kaligandaki are also in operation.
“If I were at the decision-making level, I would ask the Nepal Electricity Authority (NEA) to focus solely on building the Budhigandaki storage project instead of spreading its attention across multiple projects,” Gyawali argued. “We urgently need to build two other storage projects, including West Seti and Tamakoshi, which can help meet demand, especially during the dry season.”
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Nepal’s hydropower expansion strategy has largely been built around electricity exports to India and Bangladesh. However, India’s energy market is rapidly changing due to the explosive growth of solar power.
Large Indian conglomerates, including the Adani Group, are investing billions of dollars in massive solar farms across India’s desert regions. Solar energy has become cheaper and easier to deploy than hydropower, dramatically increasing daytime electricity supply.
This has created a serious pricing challenge for Nepal.
During daylight hours—particularly between 9 AM and 6 PM—India’s power exchanges are flooded with low-cost solar electricity, causing prices on the Indian Energy Exchange (IEX) to collapse. At times, prices reportedly fall as low as INR 2 per unit.
That poses a serious risk for Nepal’s state-owned Nepal Electricity Authority because many domestic hydropower purchase agreements were signed at significantly higher tariffs, often between Rs 4 and Rs 6 per unit.
Analysts warn that Nepal could end up generating relatively expensive hydropower only to sell it into a low-priced daytime market.
Independent power producers, however, argue that storage projects are expensive and may not be commercially viable given Nepal’s export prospects. They also argue that Nepal’s hydropower will continue to find market given its reliable and uninterrupted supply irrespective of the weather and climatic conditions.
Bhim Gautam, Chief Executive Officer of the Independent Power Producers’ Association Nepal (IPPAN), argued that market access is not a concern as long as Nepal maintains stable political relations with India. “Because Nepal largely has run-of-river projects, we have high production during summer when India’s demand is also very high,” he said. “Production falls during winter when India’s demand is relatively lower.”
Gautam further argued that Nepal may struggle to sell electricity generated from storage projects because production costs can exceed Rs 12 per unit, compared to around Rs 6 per unit for electricity generated through RoR projects.
Peak-hour power could be Nepal’s real opportunity
Experts argue that Nepal’s comparative advantage lies not in bulk daytime generation but in flexible electricity supply during peak-demand hours.
Electricity prices in India typically rise sharply during evening and early morning demand peaks—especially between 6 PM and 10 PM.
This is where storage hydropower and peaking run-of-river plants becomes strategically critical.
Rather than continuously releasing water during the day, storage projects can preserve water and generate electricity precisely when prices surge.
Experts argue that Nepal should think strategically. They argue that Nepal should think of importing cheap daytime solar electricity from India, while storing water domestically and exporting hydropower during expensive evening peak hours.
This complementary relationship with India’s solar-heavy grid, they say, could provide Nepal with a sustainable long-term energy strategy.
Storage, transmission and demand—Not just generation
One of the major concerns is Nepal’s slow growth in domestic electricity demand.
Experts warn Nepal does not have enough internal consumption to absorb the supply from the many hydropower plants coming online over the next 5 years.
Without rapid domestic electrification and long-term export agreements with India and Bangladesh, analysts fear Nepal could become dangerously dependent on foreign markets—not only for electricity trade, but also for banking sector and stock market stability.
Energy policy analyst Prabal Adhikari has expressed concern that unless domestic electrification accelerates and long-term export agreements with India and Bangladesh are secured, Nepal could become excessively dependent on foreign markets not only for electricity trade, but also for the stability of its banking sector and stock market.
Adhikari, a former deputy managing director of the Nepal Electricity Authority, said that alongside efforts to boost domestic energy demand, Nepal should prioritize long-term electricity trade agreements with India and Bangladesh.
The concerns extend beyond hydropower itself.
Energy experts say Nepal’s banking sector and stock market have become increasingly exposed to hydropower investments, particularly through Independent Power Producers (IPPs).
Many projects, they argue, are financially fragile.
Very few IPPs are genuinely profitable in the long run. In many cases, the business model is centered around IPO exits rather than long-term dividend generation.
Given these realities, experts argue that Nepal’s energy strategy must move beyond the simplistic pursuit of ever-higher megawatt targets and adopt a more sophisticated, market-oriented approach. Rather than focusing solely on expanding generation capacity, policymakers should prioritize building storage hydropower projects across and developing peaking hydropower systems capable of supplying electricity during high-price demand hours.
Analysts also stress the need to rapidly expand domestic electricity consumption through the electrification of public transit, wider adoption of electric cooking and promotion of data centers and other energy-intensive industries that can absorb surplus power domestically.
Experts warn that unless Nepal rapidly expands domestic electricity use and develops large-scale storage projects, the country could find itself trapped in a cycle of oversupply, falling export prices and rising financial risks. In such a scenario, Nepal may become increasingly dependent on the minute by minute price fluctuations of foreign supply and demand to sustain an economy heavily tied to hydropower investments.
The future of Nepal’s energy sector will depend less on how many megawatts it can produce and more on when, where and at what price it can sell electricity. “Without a major strategic shift, Nepal’s ambitious hydropower dream could ultimately become an economic burden rather than a national breakthrough,” Gyawali added.
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