Nepal (2012)

Degree of reliance on imported energy: 

As Nepal does not have any fossil fuel reserves of its own, the country has to spend significant foreign exchange on the importation of fossil fuel. Nepal imported 1.10 MtoE of energy in 2009.  Nearly all fossil-derived fuels consumed in the country are imported in a refined form from a neighbouring country, India. Furthermore, there is a steady increase in the import of petroleum fuels over the years.

Around 50MW of power is being imported from India . Recently, an agreement has been reached between both countries to supply an additional 60MW to Nepal.

Main sources of Energy: 

Total Installed Electricity Capacity (2011): 709 MW
Hydro-electric: 92%
Thermal/Imports/IPPs:: 8%

Total Primary Energy Supply (2008): 9,799 ktoe
Comb. Renew. And Waste: 86.4%
Petroleum Products: 8.0%
Coal: 2.8%
Hydro-electric: 2.7%
Electricity: 0.1%

Nepal’s economic and social development is being hampered by its inadequate energy supply. The country does not have its own reserves of gas, coal or oil. Although its most significant energy resource is water, less than 1% of the potential 83,000 MW of hydropower is currently harnessed. Firewood is the predominant energy carrier, constituting more than 70% of consumption. However, its use is inefficient, and poses a threat to the country’s forests. At the same time, the indoor pollution caused by open hearths in homes presents a hazard to health. Electricity is generally only available in urban areas .

Biomass is the major source of energy, particularly in rural Nepal. Biomass fuels consist of both woody and non-woody biomass. The former come from trees and shrubs, the latter from crop residues and other vegetation. Fuelwood from forest and tree resources, charcoal mainly from woody biomass, residues from different agricultural crops and animal dung are the major biomass-based energy resources .   Coal, petroleum products and electricity are the commercial sources of energy that are utilised in Nepal. However, the country spends a huge amount of its foreign exchange reserves for the importation of fossil fuel. In addition, transportation problems arising from the geographical structure of the country tend to bar people living in remote areas from using petroleum products .

The Nepal Electricity Authority (NEA), the government-linked monopoly electricity supplier, serves only 15% of the country’s total population. For this small fraction of customers, reliable electricity access is less than 8 h per day, with rotational blackouts accounting for the remaining 16 h. In December 2008 the Nepal Government declared a “national energy crisis” and one year later the World Bank argued that “Nepal is experiencing an energy crisis of unprecedented severity, caused by years of under-investment and sharp growth in electricity demand”. Nepal ranks among the lowest in the world in terms of net electricity generated per capita and energy intensity; and two-thirds of households live at least a 5-18 days walk from the nearest village connected to the electricity grid .

The annual electricity generation on the grid system in 2009-2010 was about 3,690 GWh, of which about 57% was generated by power plants owned by the Nepal Electricity Authority (NEA), 26% by IPPs, and the remaining 17% was imported from the Indian grid . 



Extent of the network: 

Population Access to Electricity (2011): 56% (including on-grid and off-grid)
Rural: 49%
Urban: 93%

A little over half (56%) of households in the country have access to electricity (including off-grid solutions). On the other hand, 33% of households still depend largely on kerosene for lighting. Almost all households (99.7%) in the urban areas of Kathmandu valley have access to electricity .

There is a disparity between rural and urban access to electricity. More conservative estimates suggest only 18% of Nepal’s population has electricity, while 16.1 million people do not have access to electricity.

At present, the total installed capacity of the Integrated Power System is 400 MW, with hydro-plants of 75 MW or smaller contributing about 85% in the total system capacity mix. The main transmission infrastructure operates at 132 kV, and runs parallel to the Indian border in the south of the country. Plans are in place to upgrade much of the current transmission infrastructure to 220 kV soon.

Capacity concerns: 

There are high system losses and frequent outages. Due to rapid urbanization and the increased growth rate in industries, there is a steady rise in electricity demand, which is estimated to be about 10% per annum During the year 2010, NEA was able to maintain consistent growth in its customer numbers that was increased by 10.15% and reached to 2,053,259. However, the status of the electricity has further worsened due to the increase in demand and the lack of additional power plants in operation. Generally it takes 4–5 years for a hydropower project to be completed; however, the developments of large hydropower projects are rather slow than anticipated. During the year 2010, the system load factor remained 58.3% (power deficit 551 MW) and the load shedding was imposed to compensate the unmet power demand in the country .

There is a slow expansion of the grid because of geographical difficulties and an urgent need for coordinated use of renewable energy sources.

The non-availability of commercial sources of energy has decreased the development of agricultural productivity and created excessive dependency on traditional sources, including fuel-wood and agricultural residues. Additionally, people, especially women, have to spend much time collecting fuel-wood.   Over-exploitation has resulted in a high depletion of forests, which has led to soil erosion, and decreased the area of cultivable land. The annual deforestation rate is roughly 2.1%.

The growing dependency on imported petroleum fuels coupled with rising fuel price in the international market is severely impacting the already fragile economy of the country .

Potential for Renewable Energy: 

Because of the country’s increasing dependency on imported energy sources, and environmental and public health hazards associated with the traditional practices in the use of biomass as a source of energy, a decentralized, efficient, low cost and environment friendly energy supply system based on diverse indigenous renewable resources is the present need of scattered settlements in the country .

The distinct topography, with its unique high hills and more than 6,000 rivers (approx. 2800 miles in total length) provides many opportunities for large and small hydro power development. Nepal is estimated to have theoretical hydro potential of 83,000 MW, of which 42,000 MW is economically feasible . Yet so far the country has tapped less than 650MWof this potential and hydroelectricity meets less than 1% of total national energy consumption .  Four hydropower plants, with a total installed capacity of 353.4 MW, are under construction. Chamelia (30MW) and Kulekhani-III (14MW) are planned to be completed in 2011 .

Solar Energy
Nepal, receives ample solar radiation. The average varies from 3.6–6.2 kWh/m2/day, with approximately 300 days of sun a year. The development of solar energy is thus reasonably favourable in many parts of the country. As per the report of the Alternative Energy Promotion Centre (AEPC), 2008 under the Solar & Wind Energy Resource Assessment in Nepal (SWERA), the commercial potential of solar power for grid connection is 2,100 MW.  With National average sunshine hours of 6.8/day, and solar insolation intensities of about 4.7 kWh/m2/day, there is a huge potential for Solar Water Heaters (SWH), Solar Dryers (SD), and Solar Cookers (SC). SWH have been fully commercialised, and by  2009 more than 185,000 SWH had been installed. SD and SC are still in the phase of commercialisation.

Wind Energy
Nepal has considerable wind potential. The theoretical potential has been estimated at over 200 MW. Extreme wind speeds of 46.76 m/s have been recorded, with 238 kW/m2 of energy density. Potential sites for wind power systems include the Mustang district, and wind/solar hybrid systems have been trialled for rural electrification in Pyuthan district.

Biomass Energy
Biomass dominates the energy mix in Nepal, and its potential is still considerable. Total growing forest stock is estimated at 53 million m3. Biogas, in particular, has been utilised, with production capacity of 924,000 m3 by 2004. The estimated potential for family-sized biogas plants, operating on agricultural residues primarily, amounts to roughly 200,000 units.

Geothermal Energy
As of 2004, 32 hot water spring sites, with temperatures exceeding 50ºC had been identified. Currently, geothermal energy provides roughly 2.1 MWt . Further investigation and development of the resource is ongoing.

Potential for Energy Efficiency: 


With an energy Standards & Labelling program, covering fluorescent lighting, rice cookers and refrigerators, complemented by a public awareness campaign to promote efficient appliances, Nepal could potentially save between 50 MW to 80 MW in peak demand over a five-year period. Considering the high transmission and distribution losses, this corresponds to a generation capacity saving between 60 MW to 100 MW or more than NPR 7,700 million capital investment in new capacity. The corresponding reduction in energy consumption is estimated at 215 GWh, or NPR 990 million over the five-year period.



  • Capacity-building measures for EE with the support of GIZ, including professional training for energy auditors.
  • Proposals for the introduction of high-efficiency electric motors (potentially saving 676 GWh).




  • Proposals for the introduction of new micro-hydro for rural and industrial areas. NEA is planning the introduction of large hydro projects by 2016-2020.
  • Capacity-building for efficiency in the Nepal Electricity Authority (NEA).




  • Proposals for the introduction of low-carbon mass transit.




  • Introduction of CFL/fluorescent lighting, with potential generation savings of 4,325GWh.
  • Private subsides for Solar Homes Systems (24,000 SHS installed since 1995).
  • Dissemination of efficient biomass stoves, in collaboration with the private sector.
  • Appliance energy assessments, with a view to the creation of standards.




  • Introduction of renewable energy use  in municipal lighting.
  • Creation of the Alternative Energy Promotion Centre, to support RETs and EE in the country.



Historically, Nepal’s power sector has been dominated by the Nepal Electricity Authority (NEA,, a 100% His Majesties Government of Nepal (HMG/N) owned utility, established in 1985 under the NEA Act 1984, by amalgamating the Electricity Department, Electricity Development Boards and the Nepal Electricity Corporation (NEC). The NEA is primarily responsible for planning, construction and operations for electric supply. The Eastern Electricity Corporation (a wholly HMG/N owned company) was also merged with NEA in subsequent years.  The Ministry of Water Resources has the general responsibilities for all private and public activities related to electricity supply, including the NEA. The Authority is controlled by a management Board, headed by the Minister himself and with members drawn both from within and outside the government.

Oil and gas
The Nepal Oil Corporation (NOC, has the monopoly to sell and distribute petroleum products (POL) in the country. It is registered under the Company Act 2021 (1964). It purchases oil from the world market, and arranges to receive POL products from the Indian Oil Corporation in exchange for the imported oil. Currently the arrangement is to import POL products from the Indian Oil Corporation on the basis of prevailing market price, quoted on the 1st and 16th of each month.

Structure / extent of competition: 

Presently there are various Independent Power Producers (IPPs), who generate electricity and under the Power Purchase Agreement with NEA sell the bulk power to NEA, which acts as a single buyer. NEA is also responsible for energy exchanges with India. The NEA is an entirely state-owned, vertically integrated organisation, responsible for the generation, transmission, distribution and retail of electric power. The NOC is also entirely owned by the state, and is wholly integrated in its operations.

Existence of an energy framework and programmes to promote sustainable energy: 

RE development continues to be a high priority program of government as it provides a least cost solution to remote, sparsely populated areas unviable for grid extension, while being clean, safe and environmentally friendly. GoN's goal for the next 20 years is to increase the share of RE from less than 1% to 10% of the total energy supply, and to increase the access to electricity from alternative energy sources from 10% to 30%.  The government plans to invest USD 1,076 million in RE by 2020, which will include support for hydro power, solar PV and biogas technologies. The sources of funds envisaged include government revenue, support from development partners, loan financing from financial institutions and private equity. Complementing the above, the current Three Year Plan (2010-2013) envisages the addition of 15 MW of mini/micro hydro power; 225,000 solar home systems; 90,000 domestic, 50 community and 75 institutional biogas plants; 1 MW of wind power; and 4,500 improved water mills .

National Electricity Crisis Resolution Action Plan 2008
The government brought out a 38-point Electricity Crisis Resolution Action Plan in Poush 2065 (2009) that provides for immediate, short-term and long-term programmes. Immediate programmes include determining a Power Purchase Agreement at a flat rate for power plants up to 25 MW, 7 years of income tax holiday for such plants, and waiver of the provision for performing an Environmental Impact Assessment (EIA) for power projects expected to achieve implementation by Chaitra 2068 (2011). The Plan also included plans to import more power from India, build 200 MW of thermal power plants, encourage power generation through captive plants by subsidising the additional cost involved in producing power from oil, and strengthen and add transmission capacity. It will also encourage solar and wind power through various concessions and facilities. Emphasis has been given to encouraging efficiency through low energy lightbulbs, a system of energy auditing, a code of conduct to save energy, and raising public awareness for demand-side management. The concession also included an 80% subsidy for micro-hydropower below 1 MW capacity.

Short-term measures included additional transmission lines to import power from India, increased power production through the efficient operation of generation facilities, control of technical losses, and controlling theft of electricity. Long-term programmes include high capacity transmission lines between India and Nepal and large multi-purpose projects. It also includes financial restructuring of the Nepal Electricity Authority (NEA).

Rural Energy Policy 2006
The  Rural Energy Policy 2006 has been designed, in particular, with the following strategies:

  • Development of a policy which addresses the energy needs of the rural population;
  • Creation of a rural energy subsidy with clear objectives and criteria for target groups;
  • Development and enforcement of efficient and effective credit systems;
  • Incorporation of rural energy policies of ministries and institutions related to rural development;
  • Effective cross-sectoral and donor coordination of rural energy programs;
  • Adequate information campaigns and education programs; and
  • A broad stakeholder involvement to ensure success.

The policy specifically targets the installation of improved biomass technologies to meet cooking and heating needs, off-grid micro-hydro for rural electrification capable of being grid-connected when the grid is extended, solar home systems (10 Wp and above) and white-LED and photovoltaic-based solar lights replacing kerosene lamps. The approach is to move away from per-kW subsidy to per-household subsidy. The program of small solar systems, based on small photovoltaic and white-LED as an immediate and intermediate solution will be more affordable to the poor. The policy recognises solar home systems as a mainstream electrification option for many rural areas, where grid connection and micro-hydropower are not an option for the foreseeable future.

Subsidy Policy for Renewable (Rural) Energy (SPRE) 2009 
SPRE is the latest policy instrument, which is redefined to make the existing subsidies equitable, inclusive, and effective to promote rural electrification. The policy specifically targets the installation of improved biogas technologies to meet cooking and heating needs, decentralized mini- and micro-hydro for rural electrification capable of being grid-connected when the grid is extended, SHS (10 Wp and above) and white-LED and PV based solar lights replacing poor quality of kerosene lamps. The subsidy was redefined based on per kW generated capacity in MHP projects. A subsidy amount of NRs 12,000 per household will be provided for new MHP project up to 5kW capacity; however, the subsidy will not be more than NRs 97,500 per kW generated. An additional subsidy will also be provided for the transportation of equipment and materials of the MHP project based on the remoteness of the projects.

Biogas Support Program (BSP)
Presently, the Biogas Support Program (BSP) of the Netherlands Development Organization-Nepal (SNV/N) is the second largest to improved cook stoves (ICS) program for alternative rural energy program in Nepal. BSP also became the first Clean Development Mechanism (CDM) project of Nepal with the registration of 2 projects in 2005. Technology for biogas plant, commonly known as gobar gas by locals, has been available in all 75 administrative districts of the country. As of June 2009, some 2800 village development committees
(VDCs) of the total 3913 in Nepal have biogas plants. However, biogas technology is not the panacea for the energy problem of rural Nepal because of several factors. Because the optimum temperature required for biogas production through anaerobic digestion is 35–37 ◦C, cold mountainous regions coupled with chilly winter throughout the country make it unfavourable for biogas production year round.

Biofuel Program
The Government of Nepal (GoN) announced its Biofuel Program in the fiscal year of 2008/2009 to promote biofuel in Nepal through AEPC. The program focuses particularly on Jatropha curcas L. as a biofuel feedstock for biodiesel production. The program has established 20 modern Jatropha nurseries through 12 different organizations, and has produced and distributed 1.25 million Jatropha saplings to interested farmers and organizations. Also, two processing plants – each with capacity of 1000 l biodiesel per day – have been established through two private organizations.

Scaling-up Renewable Energy Program
Nepal one of the two Asian countries selected for the Scaling Up Renewable Energy Program (SREP), A targeted program of the Strategic Climate Fund within the framework of the Climate Investment Funds. Multilateral Development Banks (MDB) comprising the Asian Development Bank (ADB), World Bank (WB) and International Finance Corporation (IFC) jointly provide assistance and oversight for the Nepal SREP in collaboration with other development partners including the UN and bilateral agencies.   The objectives of SREP in Nepal are to:

  • leverage complementary credit, grant and private sector equity co-financing,
  • bring about transformational impacts through scaling up energy access using renewable energy technologies (RETs), poverty reduction, gender and social inclusiveness and climate change mitigation, and
  • ensure sustainable operations through technical assistance and capacity building.

Current energy debates or legislation: 

Although the Rural Energy Policy 2006 has already been promulgated, its execution needs various acts as defined by the policy and more. Some important acts like Rural Energy Act, Central Co-ordination Act, Central Rural (Renewable) Energy Fund Act, Feed in Tariff Act and Alternative Energy Promotion Board (AEPB) Act are in the preparatory stages. Considering the present political situation, it may take some time to get these approved by parliament. 

Major energy studies: 

Nepal is part of the South Asian Regional Initiative for Energy under USAID (SARI/E), a program that promotes energy security in South Asia through three focus areas :

(1) cross border energy trade,
(2) energy market formation, and
(3) regional clean energy development.

Through these activities SARI/E facilitates more efficient regional energy resource utilisation, works toward transparent and profitable energy practices, mitigates the environmental impacts of energy production, and increases regional access to energy. SARI/Energy countries also include: Afghanistan, Bangladesh, Bhutan, India, the Maldives, Pakistan, and Sri Lanka.

Role of government: 

Ministry of Energy (MoEn) 
Established in 2009 through a reorganisation of the former Ministry of Water Resources, MoEn is mandated to manage Nepal’s energy sector. Its role is to develop energy resources to accelerate the social and economic development of the country, which include areas such as: policy development, planning, energy conservation, regulation; research and studies for energy and its utilisation; construction, operation, maintenance and promotion of multipurpose electricity projects; promotion of private parties in electricity development; matters related to bilateral and multilateral agreements regarding energy and electricity; matters related to tax; and coordination of institutions related to the sector.

Department of Energy Development (DoED) 
As a department under MoEn, DoED is primarily responsible to ensure transparency of the regulatory framework; accommodate, promote and facilitate private sector participation in power sector by providing a 'One Window' service; and issue licences for power projects.

Ministry of Environment (MoEnv) 
Set up as a separate entity in 2009 following a reorganisation, the main objectives of MoEnv include promotion of sustainable development through environmental protection; conservation and promotion of the natural environment and cultural heritage of the country; creation of a clean and healthy environment through the conservation of life-supporting elements comprising air, water, and soil; poverty alleviation through environment related research activities; and coordination of adaptation and mitigation programs to minimise the negative impacts of climate change.

National Development Council 
The NDC's key role is issuing policy directives to the National Planning Commission for the development of annual plans. It is chaired by the Prime Minister, with broad parliamentary membership. (

National Planning Commission
 It acts as a Secretariat for coordination and development of the government of Nepal's 5-year multi-sectoral investment programs.  (

Water and Energy Commission
The WEC provides policy advice to the government of Nepal on technical, legal, environmental, financial, and institutional matters related to water resource planning and development. (

Water Resources Development Council 
The Water Resources Development Council is an advisory group that provides guidance to the government of Nepal on strategic issues and policy regarding integrated water resource development.

Environment Protection Council
This organisation is responsible for policy development and the preparation of environmental regulations; Environment Protection guidelines for Environmental Assessments; permitting, licensing, inspection, and the monitoring of environmental licenses.

Government agencies in sustainable energy: 

Alternative Energy Promotion Centre (AEPC) 
Established under the Ministry of Environment, Science and Technology, AEPC is the nodal agency for the promotion and dissemination of alternative energy in the country. All the major off-grid electrification programs are executed by the AEPC. Recent activities have included: the Energy Sector Assistance Program (ESAP); and the Rural Energy Development Program (REDP). Mini-grid support and micro-hydro power development are the major components of the AEPC. The AEPC also administers the Rural Energy Fund (REF), for support to micro-hydro schemes.

Rural Energy Development Program (REDP) 
The REDP is a joint program of the government of Nepal, the UNDP and the World Bank, and has covered 55 districts.

Nepal Micro-hydropower Development (NMHDA) 
The NMHDA is an umbrella organisation of manufacturing and installation companies, and consulting firms, in the micro-hydropower sector.

Generation Business Group
The Generation Business Group,, is entrusted with construction of new power stations, and the operation and maintenance of existing power stations under the NEA. Currently, sixteen hydropower stations and two major thermal power plants, with a total installed capacity of 398.39 MW and 53.41 MW respectively, are in operation under this Business Group.

Clean Energy Nepal (CEN)
CEN  is a non-profit group conducting research based public education and advocacy campaigns to promote sustainable energy use and environmental conservation, particularly in the Kathmandu Valley. 

Energy planning procedures: 

At present, construction works of two hydroelectric projects, namely the Chameliya Hydroelectric Project and the Kulekhani-III Hydroelectric Project, were planned to be completed in 2011. In addition to these two projects, a third project, the Upper Tamakoshi Hydroelectric Project, is also being implemented . Several other projects are in the pipeline. Among them, a Memorandum of Understanding has already been signed between the Nepalese government and Indian developers for the projects at Upper Karnali (300 MW) and Arun-III (402 MW). Similarly, the Australian private company, the Snowy Mountains Engineering Corporation (SMEC) is developing the West Seti project (750 MW) . All these projects are export-oriented. Likewise, an Indian private company is developing the Upper Marsyangdi project (250 MW) in a joint venture with a local private company. The remaining two hydropower projects, i.e., Upper Seti and Seti Trushuli (both 128 MW) are of the storage type.

Energy planning is done at 5 year intervals by the National Planning Commission. Planning covers the electricity sector as well as renewables.

Energy regulator Date of creation: 

There is no utility or energy regulator. An Electricity Tariff Fixation Commission has been established through provisions of Electricity Act 2009. The Hydro Power Development Policy 2010 recommends that the Tariff Fixation Commission should be developed as a regulatory body. Pursuant to these recommendations the a) New Electricity Ordinance and b) National Electricity Regulatory Commission (NERC) Ordinance are under formulation.

Degree of independence: 



The extent of independence of the NERC is still unknown, as the instituting legislation has not been promulgated by the government. Currently, regulatory responsibilities lie solely with the government, and its departments.


Regulatory framework for sustainable energy: 

  • Hydro Power Development Policy 2049
  • Electricity Act, 2049
  • Electricity Regulations Act, 2050

Nepal Electricity Regulatory Commission Bill 2064 (2007-08): This was drafted to form a regulatory body to balance supply and demand, to set the electricity tariff, encourage competition and transparency in electricity market, and to protect the rights of the consumers. The Bill has not yet been passed by Parliament .

Reports of the Task Force for Generating 10,000 MW Hydropower in 10 Years (2011-2020) and 25,000 MW Hydropower in 20 Years (2011-2030): These reports contain a list of hydropower projects at various stages of development, deal with sources of investment funds, identify the barriers to hydropower development and finally suggest measures to overcome these barriers .

Regulatory roles: 

The Tariff Fixation Commission is set up to review and approve tariff filings by the NEA. It is neither required to review IPP transactions, nor approve power purchase agreements between IPPs and the NEA. Also, it is not required to review energy exchange arrangements between the NEA and India .

Role of government department in energy regulation: 

Presently the energy regulation (tariff fixation) is undertaken by the Tariff Fixation Commission, which has a government representative. In the case of petroleum products, the government directly regulates the sector.

Regulatory barriers: 

The establishment of an energy regulator, with the responsibility to oversee the sector, ensure fairness, and promote transparency and competition, would further encourage the development of the sector. Currently, the energy sector is dominated by the state-owned corporations involved, although IPP development, whilst slow, is existent in the country. The creation of a more favourable environment for private-sector participation in the energy sector would follow the establishment of an independent regulator, and a cohesive regulatory framework for energy.

AEPC, the single governmental agency for the promotion of RETs, is mainly focusing in the dissemination of the proven technologies through subsidy. However, the government has yet to establish institution with the sole responsibility of research and development of RETs that are most compatible for the nation’s diverse socioeconomic and geophysical conditions.


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