The world isn’t on the same page regarding energy, whether it’s about access or abundance. Some are deep in debates about net-zero deadlines. Others hope the lights stay on tonight. And then, more than ever, there are those trying to navigate the transition in a messy and geopolitically charged world. Somewhere in between all this, far from the spotlight, Nepal did something easy to miss. It quietly built one of the world’s most extensive networks of mini-grids over the last three decades, electrifying its remote villages in some of the most challenging terrains on Earth. Here’s something that might surprise you: with over 3,000 mini-grids, Nepal arguably leads globally in the proportion of its population connected to decentralized renewable mini-grids for rural electrification.
I began my journey in the energy sector in 2007, working closely with local villagers to restore two flood-hit micro-hydro systems in Nepal’s remote Western hills. While that story is mine, it wasn’t unique. Across the country, hundreds of engineers, local technicians, masons, women, and men were doing similar work, learning as they went and working with identical constraints on the ground. And I’ve often returned to this story, both with pride and with questions. What did Nepal get right? Why was this success never fully claimed or shared? And what might the world, especially frontier economies across Africa and Asia, learn from this quiet, home-grown energy experiment?
Lesson One: Start Where the People Are
Nepal began with what it had – rivers, community trusts, and necessity; not waiting for the perfect framework applied elsewhere or the SDG metrics or international finance to begin its rural electrification journey. It started with ingenuity in the hills, with villagers repurposing the traditional water mills, and local craftsmen who learned by doing and shaping what they had, be it turning tree logs, steel and stone into penstocks and turbines.
Long before “decentralized energy” became a development buzzword, a quiet wave of local innovation was establishing its roots in Nepal. One such innovator I often recall is Akkal Man Nakarmi, a self-taught engineer who began redesigning traditional water mills into micro-hydro turbines as early as the 1960s. I first heard of him while researching Nepal’s water mill legacy in 2012, and later had a chance to write his obituary for The Kathmandu Post.
Although Nepal’s first hydropower plant was built over a century ago in 1911, the real momentum for rural electrification came much later. Particularly in the last three decades, Nepal experimented with various approaches to energy access in its villages. As a mountainous country, extending the grid to remote hills has not always been feasible or sensible. So, starting with people wasn’t just what circumstance demanded; in the end, it turned out to be the real transformation required.
Photo 1: Nepal’s first improved water wheel, a pioneering experiment of Nepali ingenuity, built by Mr. Gopal Man Nakarmi, around 1940.
Photo 2: The Multi-Purpose Power Unit, a landmark innovation developed by Akkal Man Nakarmi and Swiss engineer Andreas Bachmann in 1967. Courtesy of Tirth Man Nakarmi (Akkal Man’s son).
Lesson Two: Institutions Matter but So Does Where They Begin
You can pilot a project, write a policy, even create a new agency but institutions don’t evolve just because someone in a faraway capital or high office says how they should. They evolve only when people on the ground try new things, solve problems in their own way, and when those in authority, resources and influence notice what’s working and make space for it to grow.
That is exactly what happened in Nepal.
It wasn’t until the 1980s, with the introduction of state incentives, that micro-grids truly began to take off. What began in scattered remote villages started to shape a decentralized, people-led initiative. Nepal’s rural electrification story isn’t just about micro-hydro or solar, it’s about the ecosystem that made decentralized energy work. Geography, necessity, and a mix of local metalworkers, villagers, masons and engineers came together to create something uniquely Nepali.
After Nepal’s shift to multi-party democracy in the mid-1990s, electricity also became political. It showed up in campaign promises, budget debates, and community meetings. Off-grid systems became a kind of political currency, and as means to show tangible proof that leaders could deliver.
But Nepal didn’t do this alone, it collaborated. Starting in the mid-90s, support from bilateral partners, especially Denmark and Norway, along with assistance from multilateral agencies like the World Bank, ADB, and UNDP, and growing state investment, helped scale what the community had already started.
The creation of Nepal’s Alternative Energy Promotion Centre (AEPC) in 1996 was a quiet turning point. It gave the country something it hadn’t had before. A dedicated, state-backed institution focused on renewables and later came with state subsidies. In many ways, this rise of Nepal’s Keynesianism didn’t just make systems affordable, it helped create new demand across the country. Local entrepreneurs stepped in, communities became more organized, and a new momentum began to emerge. With tiny steps, more hills and more villages started lighting up. Today, over 98% of households in Nepal have access to electricity.
Lesson Three: But be Careful – When Subsidy Becomes the System, It Can Distort What it Was Meant to Fix
Subsidy was never the problem. In Nepal, it helped millions to access energy, kickstart the rural markets, and turn electricity into a public good. For years, it worked, because it was tied to the need.
But over time, what began as a tool to fix market failures became the market itself. Instead of rewarding the performance, the lure of subsidies invited inefficiency, inflating costs and crowding out innovation. In Nepal, a strange form of market inefficiency began to emerge. Over time, even the private sector got too comfortable and instead of pushing for innovation, companies began to protect the status quo.
In 2014, Nepal tried to reset that logic. I was fortunate to be one of the many involved in the revision process working to rethink how subsidies could open space for credit and market participation. AEPC also introduced initiatives like the Central Renewable Energy Fund (CREF) to blend subsidy with financing and bring banks into the conversation.
Today, a new ecosystem is slowly taking shape despite challenges. Microfinance institutions are active. Commercial banks, like NMB, which emerged as a pioneer in sustainable financing, have started showing up. Others are following.
Not to mention, a big part of this push is also driven by the states’ monetary policy. Nepal’s central bank requires local financial institutions to allocate as much as 25% of their total loan portfolio to priority sectors like agriculture, energy, and tourism, creating new room for credit to flow into clean energy.
It’s not perfect, but the new market is evolving.
What Got You Here Won’t Get You There
Nepal is not without its contradictions. Every phase has its time, and technologies evolve, markets shift, and old models make paths for the new ones. Nepal’s bottom-up off-grid journey was perhaps never meant to be permanent. As the national grid rapidly expanded, the sector had to adapt. In this shift, grid integration still remains a major hurdle. Many once-thriving micro-grid projects now risk becoming stranded assets, proved, resilient, yet unable to sell power or stay viable in a centralized energy system.
Photo 3: Thabang, Rolpa. A 150kW solar mini-grid powering over 300 households and local businesses in one of Nepal’s remotest hill districts in the midwest. (Source: AEPC).
The issue is less technical. Many enterprises, local innovators, and service providers who helped in electrifying Nepal’s hills are now struggling, not because their solutions failed, but because of the system around them that hasn’t evolved fast enough. They need support to scale, room to adapt, and recognition that their models still hold relevance, even as the landscape changes.
Maybe the question isn’t about if the decentralized systems work. They do. The real question is whether we’re ready to work with them differently: beyond the pilot projects, beyond access metrics, beyond the classical donor funding scopes, and into a new kind of logic that values flexibility, resilience, and what’s locally possible.
Photo 4: A micro-hydro powerhouse rebuilt on higher ground in Dadeldhura, far-western Nepal, after a 2005 flood destroyed the original site. Photo from my field visit, with reference to UNDP/REDP
Nepal Started Early but It Always Stayed in the Global Blind Spot
Nepal’s electrification success is not perfect but it’s remarkable. And still, it’s a story few outside the region know. Even within Nepal, we don’t always see it for what it was. That’s the paradox. You can be a part of something, and still won’t fully grasp its shape. But Nepal’s homegrown ecosystem, though messy, is adaptive and deeply local, offering lessons for any country whether they are facing tough terrain or tight budgets. But it always stayed in the global blind spot. We never really shared. And the world never truly asked.
Bibek Raj Kandel is an energy policy and international development expert, and a Senior Fellow at Nepal Economic Forum. He has worked extensively, both in Nepal and internationally, providing advisory services to governments, industries, and international agencies in the energy and climate space. His experience includes working across diverse regions including South Asia, Asia Pacific, and Sub-Saharan Africa. He holds an MSc in Energy Management from the University of Twente, in the Netherlands and an MPA from Harvard University.
