What Is The Status Of Hydroelectricity In Nepal 2023?

Nepal has a unique geography which has led the country to rely heavily on hydroelectric power to meet its energy needs. Landlocked between India and China, Nepal is dominated by the Himalayas with fast flowing rivers that provide ideal conditions for generating hydroelectricity. With few indigenous sources of fossil fuels, hydropower has become the backbone of Nepal’s electricity grid, supplying over 90% of the country’s energy demand (https://nepaleconomicforum.org/the-role-of-and-challenges-and-prospects-for-hydropower-development-in-nepals-energy-sector/). However, Nepal’s hydropower potential remains largely untapped – only about 2% of an estimated 83,000 MW capacity has been developed so far. Rapidly growing energy needs, chronic power shortages, and the goal of becoming a major electricity exporter to neighboring countries has put the focus on maximizing Nepal’s hydro resources.

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Current Hydroelectricity Capacity

As of 2023, Nepal’s installed hydroelectricity capacity is estimated to be around 2,800 MW, according to the state-owned utility Nepal Electricity Authority (NEA) [1]. This represents a significant increase from just over 2,000 MW in 2021. The additional 800 MW added in the past two years is largely attributed to the completion of several medium and large-scale hydropower projects across the country.

Major projects commissioned in 2022-2023 include the 450 MW Upper Tamakoshi plant, 69 MW Marsyangdi plant, 42 MW Lower Solu plant, and 82 MW Middle Bhotekoshi plant [2]. With these new additions, Nepal’s hydro capacity has steadily grown to meet rising electricity demand domestically.

Hydroelectricity Production

Nepal’s annual hydroelectricity production has increased significantly in recent years, driven by the completion of major projects. According to the International Hydropower Association, Nepal’s total installed hydroelectric capacity reached 2,611 MW at the end of 2022. Hydroelectric generation grew by 500 MW in fiscal year 2022/2023, continuing the trend from the prior year. In 2022, Nepal generated 16,838 GWh of hydroelectricity, up from 14,564 GWh in 2021. This represents over 90% of the country’s total electricity generation.

The major projects driving increased hydro production include the 456 MW Upper Tamakoshi project which was completed in 2022, as well as the 111 MW Rasuwagadhi and 42.5 MW Sanjen projects finished in 2021. Several other medium-sized projects in the 50-100 MW range also came online recently. Nepal has seen rapid growth in hydro capacity addition since 2018, more than doubling in just 5 years. With massive projects like the 900 MW Upper Karnali and 900 MW Arun III scheduled for completion by 2025, hydroelectricity output is projected to continue growing at a robust pace.

Contribution to Grid

Hydropower currently accounts for around 90% of Nepal’s total electricity generation. According to the Hydroelectric generation in Nepal grew 500 MW in 2023, hydropower generation reached 1,612 MW in FY2023, meeting around 90% of Nepal’s electricity demand. This reliance on hydropower reflects Nepal’s abundance of hydro resources and underdevelopment of other energy sources.

Under Construction Projects

Nepal has several major hydropower projects currently under construction. According to the Department of Electricity Development, there are a total of 82 projects under construction with a combined capacity of 3,466 MW (Source). Some of the biggest projects include:

Upper Tamakoshi (456 MW) – Located in Dolakha district, expected completion is 2023 (Source)

Tila-1 (440 MW) – Located in Solukhumbu district, expected completion is 2025 (Source)
Tila-2 (420 MW) – Located in Solukhumbu district, expected completion is 2026 (Source)

Several other projects between 100-300 MW capacity are also under construction in various parts of Nepal and expected to come online in the next few years.

Future Potential

Nepal has enormous hydroelectric potential that has yet to be fully tapped. According to one estimate, Nepal’s technically feasible hydropower potential is approximately 43,000 megawatts (MW) (Thapa, 2012). However, only around 1,000 MW has been developed so far, representing just 2-3% of the total potential.

In 2016, the government declared a new target to generate 10,000 MW of hydroelectricity by 2030 through both public and private sector investment. This is part of the government’s plans to make Nepal a middle-income country by 2030 through harnessing more of its hydro resources.

Realizing Nepal’s full hydroelectric potential could produce enough electricity for domestic consumption as well as provide surplus power for export to neighboring countries. However, numerous technical, financial and political challenges remain in tapping Nepal’s enormous hydro potential.

Government Policy

The Nepalese government has enacted various policies and plans over the years to promote the development of hydroelectricity in the country. Some key policies include:

The Hydropower Development Policy, 2049 [1] introduced several incentives for attracting private investment in hydropower such as allowing projects to sell electricity directly to consumers, providing tax holidays, and simplifying license procedures.

The Hydropower Development Policy, 2058 [2] identified hydropower as an export commodity and set a target to develop 10,000 MW in 10 years through private sector participation.

More recently, the Nepal Hydropower Development Program [3] supported by USAID aims to facilitate private investment in environmentally and socially sustainable hydropower projects.

Private Sector Investment

The private sector plays an increasingly important role in developing hydroelectric projects in Nepal. As of 2023, the private sector is involved in developing over 40% of the country’s hydroelectric capacity under construction (ADB Signs $60 Million Private Sector Deal to Build Hydropower Plant in Nepal). Private companies bring capital, technology, and expertise that helps accelerate project development. This is critical for Nepal to harness its huge hydro potential, estimated at over 40,000 MW.

Major private sector players in Nepal’s hydro industry include companies from India, China, Norway, and beyond. The government is encouraging foreign investment by offering incentives like tax holidays, low interest loans, and power purchase guarantees. Private developers can now generate and sell electricity directly to the market instead of only selling to the Nepal Electricity Authority. The government is also improving the licensing and approval process to facilitate private investment (Nepal’s hydro sector, an assured return for investors, finance minister says).

While the role of the private sector is increasing, challenges remain. A 2021 study of private developers in Nepal found disagreements around profit expectations, land acquisition, resettlement and environmental issues, and licensing delays (The future of hydropower development in Nepal). Addressing these concerns and providing a stable, predictable investment climate will be key to unlocking Nepal’s massive hydroelectric potential through private finance and expertise.

Challenges

Nepal faces several challenges in developing its vast hydroelectric potential. Major obstacles include lack of investment, flawed policies, infrastructure constraints, and difficulty accessing electricity markets.

Investment in large-scale hydropower has slowed due to Nepal’s unstable politics and unfavorable investment policies. The government struggles to attract sufficient foreign direct investment, while domestic banks lack capacity to fund mega-projects. Red tape and corruption further hamper investments.

Critics argue that Nepal’s policies favor large hydropower over more flexible small-scale projects better suited to remote regions. Policy inconsistency across changing governments creates uncertainty. Nepal also lacks infrastructure like roads and transmission lines to support major hydro plants and get electricity to distant markets.

Lastly, Nepal cannot easily export electricity due to its landlocked location between India and China. It must negotiate transmission rights through India to reach other markets, a difficult geopolitical challenge. However, recent trade agreements with India show some promise in improving cross-border electricity flow.

Outlook

The outlook for hydroelectricity in Nepal is promising yet challenging. With an estimated 43,000 MW of commercially viable hydroelectric potential, Nepal has only developed around 2,000 MW as of 2023, leaving ample room for growth (Hydro Review). The government has set an ambitious target to develop 30,000 MW of hydropower capacity by 2035, focusing on large-scale projects that can export electricity to India and Bangladesh (Kathmandu Post).

However, attracting private investment and financing these large projects remains a key challenge. Factors like lack of transmission infrastructure, long development timelines, political instability, and natural disasters continue to hamper growth of the sector. While the potential is enormous, realizing Nepal’s hydropower goals will require overcoming persistent barriers through policy reforms, public-private partnerships, and regional electricity trade cooperation.