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Nepal is set to significantly expand its electricity generation capacity in the current fiscal year as private investment in the hydropower sector continues to grow. The government has targeted adding a total of 1,040 megawatts (MW) of electricity to the national transmission system during fiscal year 2026/27 (2083/84 BS) through hydropower and solar energy projects.

The country’s installed generation capacity has been increasing steadily in recent years, driven largely by private-sector investment, supportive government policies and the expansion of transmission infrastructure. The government’s efforts to widen electricity trade with neighbouring countries have also encouraged greater investment in power generation.

According to the Ministry of Energy, Water Resources and Irrigation, 670 MW of electricity will come from hydropower projects while 370 MW will be generated from solar projects during the current fiscal year. Once these projects come online, Nepal’s total installed electricity generation capacity is expected to reach approximately 5,535 MW.

The increase in generation capacity is expected to help meet rising electricity demand from industrial and commercial users. Alongside higher production, electricity exports have also continued to grow.

According to the Nepal Electricity Authority (NEA), Nepal exported 3.8774 billion units of electricity to India and Bangladesh during fiscal year 2025/26 (2082/83 BS), earning more than Rs 29.32 billion. Export earnings were nearly 68 percent higher than those recorded in the previous fiscal year.

Nepal’s hydropower sector has witnessed remarkable growth since the government opened it to private investment. The Independent Power Producers’ Association of Nepal (IPPAN) says the private sector has already invested more than Rs 13 trillion in the industry.

Private developers currently hold licences for 915 hydropower projects with a combined capacity of 34,377 MW, covering projects under construction as well as those in various stages of development and operation.

At present, 187 projects with a combined capacity of 5,792 MW are under construction. Another 134 projects, with a combined capacity of 2,862 MW, have already signed Power Purchase Agreements (PPAs) and entered the financial closure stage.

According to the Department of Electricity Development (DoED), 380 projects with a total installed capacity of 25,743 MW are currently at different stages of development. Among them, 261 projects, representing 16,114 MW, have applied for PPAs.

IPPAN President Mohan Kumar Dangi said Nepal could make a major leap in electricity generation if the government implemented a genuine one-door approval system and simplified legal and administrative procedures.

According to IPPAN, limited opening of PPAs over the past seven years has left hydropower projects with a combined capacity of around 16,000 MW waiting for government decisions.

The association has also called for concessional interest rates, refinancing facilities, long-term stable financing policies, an extension of tax incentives and simplification of VAT refund procedures to accelerate investment.

The government plans to expedite construction and financial management of several major hydropower projects in the coming years. These include Rahughat, Tanahun Storage, Upper Modi, Upper Trishuli-3B, Budhiganga, Upper Arun, Uttarganga, Chainpur Seti, Tamakoshi-5, Nalagad, Arun-4, Naumure, Betan Karnali and Budhigandaki.

In addition, the government has pledged to facilitate the development of projects with a combined capacity of nearly 3,000 MW, including Arun-3 and Lower Arun.

As part of broader structural reforms in the energy sector, the government plans to unbundle the Nepal Electricity Authority into three separate entities responsible for generation, transmission and trading, and distribution.

It has also proposed cancelling licences of projects that have signed PPAs but failed to begin construction, introducing a “take-or-pay” model for new PPAs, and immediately opening PPAs for projects with capacities below 10 MW.

Expansion of transmission infrastructure remains one of the government’s highest priorities. It has allocated Rs 70 billion for the current fiscal year to complete the Hetauda-Dhalkebar-Inaruwa 400 kV transmission line and accelerate construction of the Khimti-Barhabise-Kathmandu and Hetauda-Ratmate-Lapsiphedi-New Damauli-New Butwal transmission corridors.

The government has also prioritised construction of cross-border transmission lines connecting Nepal with India and China to facilitate regional electricity trade.

Minister for Energy, Water Resources and Irrigation Biraj Bhakta Shrestha has repeatedly stated that the government’s priority is no longer limited to increasing electricity generation but also expanding domestic consumption and boosting exports.

He has said the government plans to implement its national electricity consumption policy and export strategy while selling surplus electricity in regional markets through cross-border transmission lines.

Energy experts say Nepal possesses enormous hydropower potential, but transforming that potential into tangible economic gains will require policy stability, legal reforms, an investment-friendly environment and timely construction of transmission infrastructure.

They believe that with effective coordination between the government and the private sector, Nepal could achieve a historic breakthrough in electricity generation, domestic consumption and exports within the next decade.

By Dilip Paudel