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The Government of Nepal has set an ambitious roadmap to transform its energy sector, aiming to increase per capita electricity consumption to 1,500 units and expand total installed capacity to 28,500 megawatts by 2035.

The targets are outlined in the newly prepared “Energy Consumption Growth and Export Strategy 2083” by the Ministry of Energy, Water Resources and Irrigation, positioning hydropower as a central pillar for economic growth, energy security, and export-led development.

Structural Challenges Identified

The government has identified 13 critical challenges hindering the growth of Nepal’s energy ecosystem. Among the most pressing issues are the weak capacity and poor quality of the electricity distribution system, alongside the lack of reliable and high-quality power supply to industrial sectors - an ongoing bottleneck for Nepal’s industrialization drive.

Demand-side challenges also remain significant. Limited use of electricity-intensive appliances in households and businesses, low electrification in agriculture and irrigation, and inadequate infrastructure for electric vehicle charging continue to constrain domestic consumption growth.

Additionally, the underdevelopment of energy-intensive industries such as data centers, green hydrogen production, chemical fertilizer plants, and modern brick kilns highlights structural inefficiencies in utilizing surplus electricity.

The strategy also flags insufficient development of domestic and cross-border transmission infrastructure, which remains a major barrier to exporting surplus electricity to regional markets.

Export Ambitions and Regional Integration

Nepal’s long-term vision includes transforming electricity into a major export commodity. However, the government acknowledges multiple barriers, including policy misalignment between Nepal and neighboring countries, lack of legal frameworks to enable private sector participation in electricity trade, and the high cost of electricity production, which undermines competitiveness in regional markets.

Upgrading Nepal’s national grid to match regional standards and developing a competitive electricity market linked to neighboring systems are also identified as key challenges. Ensuring regulatory harmonization and expanding transmission connectivity will be essential to unlocking export potential.

Hydropower as a Strategic Asset

The strategy underscores the urgent need to develop large-scale storage hydropower projects to meet both domestic demand and export commitments. These reservoir-based projects are considered critical for ensuring supply stability and enabling Nepal to respond to regional demand fluctuations.

A major opportunity lies in Nepal’s ability to export surplus electricity after meeting domestic needs. Under the long-term power trade agreement between Nepal and India, the country has a clear pathway to export up to 10,000 megawatts of electricity within a decade. Seasonal demand complementarities - where Nepal’s peak production coincides with high demand in India and Bangladesh - offer the potential for premium pricing in export markets.

Opportunities in Green Energy Transition

The government sees hydropower as a key enabler for reducing the country’s trade deficit and strengthening its external sector. By replacing fossil fuel imports with domestically generated clean energy, Nepal can significantly save foreign currency and improve its balance of payments.

The strategy also highlights opportunities in climate finance and carbon markets, given the growing global shift toward net-zero emissions. Nepal’s hydropower is positioned as an attractive green energy alternative for neighboring countries pursuing decarbonization targets.

Furthermore, the development of energy-intensive industries - such as data centers, green hydrogen, and fertilizer production - could help build an energy-driven economy, creating jobs and boosting industrial output.

Targets and Expected Outcomes

By 2035, Nepal aims to allocate 13,500 megawatts of electricity for domestic consumption and 15,000 megawatts for export. The strategy projects significant growth in electricity exports, contributing to a substantial reduction in the country’s trade deficit and enhancing the energy sector’s share in the national economy.

Once implemented, the plan is expected to ensure universal access to reliable electricity across the country, increase per capita consumption to approximately 1,500 units, and boost export revenues through higher tariffs and expanded market access.

The government also anticipates improved market management of surplus electricity, reduced environmental pollution, and meaningful progress toward achieving sustainable development goals, positioning Nepal as a regional clean energy powerhouse.