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Nepal’s Power Sector in 2030

The Nepali power sector has been beset by challenges since the early 1990s; initially with the unfinished reform begun by the Electricity Act, 1992 which created an ineffective hydro-project licensing regime. Beginning 1996, the demand of electricity started to increase in an unprecedented trend as people migrated into Kathmandu. Political instability, slow decision-making and a breakdown of corporate governance slumped investment, resulting in up to 18 hours daily power outages. In response to power shortages, public and private sectors have responded by investing in generation and transmission projects. But instead of just responding to crises, Nepal has the potential to leapfrog into an electric economy by 2030 if a few basic sector reforms are initiated and programs already on paper are implemented.

First, given its hydrology, Nepal needs to have the physical and institutional infrastructure to allow electricity trade which should help optimize domestic power sector investment. This requires two or more cross border transmission connections and an independent trading company. Second, the power system needs to have an open access transmission network whereby private developers have non-discriminatory access to the grid. Third, a progressive power market structure will require an independent regulator. Fourth, existing energy sector laws need to be amended or new laws passed for the sector transformation to continue. These reforms are necessary to lay the foundation for the transformation of the Nepali economy into an electric economy, where electricity could displace imported cooking gas and transportation fuel, saving approximately USD 1 billion a year. One could even envision a scenario where surplus electricity is used to convert the abundantly available water into hydrogen, creating a fuel-cell based transportation system and a hydrogen economy. All this requires a strong commitment and a laser-focused execution of the vision.

Himesh Dhungel
Country Director, Nepal, Millennium Challenge Corporation
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