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The government has identified 13 major challenges in Nepal’s energy sector and concluded that addressing them will require effective initiatives, diversified investment, and legal reforms. Weak capacity and poor quality in the power distribution system, along with the lack of reliable electricity supply for industries, remain key concerns.

Rising use of high-energy-consuming devices in households and businesses has also been flagged as a challenge. So has the need to expand electricity use in agriculture, irrigation, and industry, along with the lack of infrastructure for electric vehicle charging.

The government has also pointed to the slow development of energy-intensive industries such as data centers, green hydrogen, fertilizer production, and modern brick kilns. Another challenge lies in exporting surplus electricity, once domestic demand is met, to bilateral, sub-regional, and regional markets. For that, sufficient development of domestic and cross-border transmission lines and related infrastructure is essential.

According to the Ministry of Energy, Water Resources and Irrigation’s “Energy Consumption Growth and Export Strategy 2083,” Nepal must develop large reservoir-based hydropower projects to meet domestic demand and export electricity based on regional market needs. Aligning Nepal’s policies with those of neighboring countries and addressing the lack of legal provisions for private sector participation in electricity trade are also key challenges.

High production costs make Nepal’s electricity less competitive in neighboring markets. Upgrading Nepal’s national grid to match regional systems and developing a competitive electricity market linked to neighboring countries are further hurdles.

Despite these issues, the government sees strong opportunities. Hydropower can be developed as an exportable commodity, helping reduce the country’s annual trade deficit. Expanding electricity use in transport, households, and industries could significantly boost domestic consumption and strengthen long-term energy security through clean, locally produced power.

There is also strong potential to export surplus electricity to bilateral and regional markets. A long-term power trade agreement with India provides a clear basis to export 10,000 megawatts over the next decade. Seasonal demand patterns also work in Nepal’s favor, as electricity demand peaks in India and Bangladesh when Nepal’s production is high, creating the chance to secure better prices.

For neighboring countries aiming for carbon neutrality, Nepal’s hydropower offers an attractive green energy option. Replacing fossil fuels could save foreign currency and improve the balance of payments. The government also sees opportunities in accessing climate finance and carbon markets, and in building an energy-based economy through industries like data centers, green hydrogen, and chemical fertilizer plants.

The government has set a target to increase per capita electricity consumption to 1,500 units and total installed capacity to 28,500 megawatts by 2035. Of this, 13,500 megawatts will be used domestically and 15,000 megawatts exported.

Under the “Energy Consumption Growth and Export Strategy 2083,” electricity exports are expected to rise significantly. This could reduce the trade deficit and increase the energy sector’s contribution to the national economy.

Once the strategy is implemented, per capita electricity consumption is expected to reach around 1,500 units, with reliable electricity access for the entire population. Export volumes, average export prices, and revenue are all projected to grow. Efficient management of surplus electricity markets will be ensured, while environmental pollution is expected to decrease, contributing to sustainable development goals.