There is a popular saying: “Ambitions reveal direction”. Recently, the Ministry of Energy, Water Resources and Irrigation unveiled the Energy Development Roadmap and Action Plan-2024, which sets an ambitious target of generating 28,500 MW of energy by 2035. Currently, Nepal’s installed energy capacity stands at approximately 3,400 MW, meaning the new roadmap aims to add an additional 25,100 MW over the next decade.

Setting clear objectives is critical for any institution, as they provide the strategic direction needed to craft actionable operational plans. Without such goals, there is often a lack of clarity, enthusiasm and purpose, which can hinder progress. Action plans serve as catalysts, driving efforts toward achieving these targets. In this regard, the Energy Development Roadmap and Action Plan is a positive step forward, one that will guide the government and energy sector stakeholders in their efforts.

However, it is important to remember that a good roadmap should adhere to the SMART criteria—Specific, Measurable, Achievable, Realistic and Time-bound. Upon closer inspection, the action plan bears a striking resemblance to earlier plans that also set ambitious power generation targets. Those prior plans similarly aimed to add thousands of megawatts but largely failed short of their goals. In many cases, the targets were little more than political statements - lofty ambitions that lacked a realistic assessment of Nepal’s energy landscape.

For an action plan to be truly effective, it must account for the current situation and devise practical strategies to achieve its targets. Simply continuing with existing strategies, processes and methodologies might allow the government to achieve part of the target by 2035. However, reaching the full goal will require a favorable international and regional environment, a shift in domestic business practices, and an overarching positive climate across all sectors. At present, such optimism feels more like a distant dream than a tangible reality.

According to the roadmap, an estimated $46 billion—roughly equivalent to Nepal's current GDP—will be needed to develop the targeted energy capacity over the next decade, with each megawatt of power costing approximately Rs 250 million. These investments are expected to come from a mix of local public and private sector funding, foreign investments, grants and climate funds. The plan projects that 15,000 MW will be exported, while 13,500 MW will be consumed domestically. This would lead to a fourfold increase in per capita electricity consumption, rising to 1,500 units per year.

On a positive note, these are undeniably bold ambitions. If achieved, they could pave the way for a prosperous Nepal - a vision long cherished by many Nepali people. However, there is a critical caveat that must be acknowledged: financing capital-intensive projects like hydropower cannot succeed without a dependable market for the electricity generated. Currently, Nepal’s domestic market is far too limited to absorb the surplus energy produced during the wet season. This leads to power spills, which not only hurt the balance sheets of energy companies but also strain their relationships with lenders. Even on the international front, the market remains constrained. Despite strong energy demand in neighboring countries like India and Bangladesh, Nepal is unable to export excess power to these markets during periods of surplus.

A sufficient market, combined with reasonable profitability and an improved investment climate, would attract investment from both local and international sources. But without such a market, the prospects remain uncertain.

At present, Nepal is focused on developing run-of-river (ROR) hydro projects, which are easier to implement but do not necessarily align with the current needs of the energy system. Even if the country achieves the target of 28,500 MW through these ROR projects, the lack of a robust market will still result in substantial power spills. This surplus would be unsustainable for energy companies, the Nepal Electricity Authority (NEA), and lenders alike. While the 13,500 MW planned for domestic consumption could meet demand during the dry season, a substantial surplus is likely to persist during the wet season, when power generation far exceeds demand. This mismatch between supply and demand calls for a fundamental shift in approach. The development of ROR projects must be reconsidered. Even peaking plants, which can generate power for just three to four hours, could address many of these challenges.

The NEA currently faces difficulties in signing new power purchase agreements (PPAs) due to uncertainty surrounding power exports. Of the 15,000 MW projected for export, 10,000 MW is slated for India, based on a broad agreement to export this amount over the next decade. However, this deal comes with numerous uncertainties and conditions. The remaining 5,000 MW is earmarked for export to Bangladesh, though this will depend on India’s consent and the use of Indian infrastructure for transmission. While Nepal has begun exporting 40 MW seasonally to Bangladesh, scaling this up to 5,000 MW will face significant hurdles.

India has committed to reducing its carbon footprint, but its focus on economic growth and energy security limits its willingness to reduce reliance on thermal power plants. That said, over time, India is likely to become more open to importing hydroelectric power from Nepal. This would be a mutually beneficial arrangement, particularly as India’s growing solar energy capacity creates a demand for peaking power to balance its grid. Nepal's hydroelectric capacity could fill this gap, presenting significant opportunities for both countries.

The Nepal Electricity Authority (NEA) has remained largely passive in hydro project development over the past decade. While some projects have progressed under NEA’s oversight, they have been managed externally rather than within the organization. To address this, the government established Vidyut Utpadan Company Limited (VUCL). However, the company has struggled to raise funds for its projects and has been criticized as a politically motivated entity, prioritizing political interests over effective energy production. With government finances under strain, there is little capacity to fund large-scale hydro projects. As a result, the private sector has taken the lead in hydropower development, though it faces significant challenges, including financing difficulties, insurance concerns, corporate governance issues, and limitations in public issuance. If left unresolved, these challenges could disrupt the energy sector.

Foreign direct investment (FDI) is another potential source of funding for hydropower projects. Foreign investors are typically drawn to markets with low risk and high profit potential. Despite more than two decades of FDI experience, Nepal has yet to become a preferred destination for large-scale foreign investment. Without a secure market and effective hedging mechanisms, FDI in Nepal is likely to remain limited. While FDI from India is expected to increase - given the potential for shared currency and market access, investment from other countries is unlikely to rise significantly due to market and currency risks. Geopolitical complexities further complicate FDI from China, and India is likely to impose restrictions on such investments.

Financing is a critical component for large-scale projects like hydropower. Once financing is secured, the focus shifts to project implementation. However, Nepal’s current legal and regulatory framework presents several challenges. Land acquisition, environmental impact assessment (EIA) approvals, insurance, security and contract management are just some of the hurdles that need to be addressed. Hydro projects must adhere to approved practices and EIAs to avoid bureaucratic delays and obstacles during implementation.

Nepal has made significant progress in capacity building for hydro design and engineering. However, further improvements are needed, particularly in executing large-scale, reservoir-based projects. Similarly, domestic capacity in civil construction and hydro-mechanical fabrication is gradually improving, with a growing pool of skilled workers.

The development of transmission infrastructure for power evacuation has also been a challenge. A lack of coordination has resulted in disorganized and inefficient power lines. While the government has initiated efforts to streamline transmission line development, these initiatives need to be strengthened. Additionally, the construction of large substations will be critical to managing the increased capacity effectively.

In conclusion, Nepal's ambitious Energy Development Roadmap and Action Plan represents a significant step forward. However, achieving the target of 28,500 MW by 2035 will require addressing fundamental challenges, particularly regarding market demand, financing and international collaboration. Only with careful planning, targeted investments and strategic partnerships can Nepal turn its ambitious energy vision into a sustainable reality.

(Neupane is CEO of Simple Energy Pvt. Ltd.)

(This opinion article was originally published in  February 2025  of New Business Age Magazine.)