Hydropower emerges as a core growth engine of Nepal’s economy

KATHMANDU: Nepal’s hydropower sector continues to expand rapidly, reinforcing its position as a central pillar of economic growth, energy security, and the country’s transition toward clean and sustainable development.

Installed hydropower capacity has more than doubled over the past five fiscal years, underlining how electricity generation is increasingly shaping Nepal’s economic trajectory.

According to official data, Nepal’s installed hydropower capacity stood at 1,318.2 megawatts (MW) in fiscal year 2019/20. This figure rose steadily to 1,458.0 MW in 2020/21 and surged to 2,075.4 MW in 2021/22, reflecting the commissioning of several medium and large-scale projects.

Growth accelerated further in 2022/23, with installed capacity reaching 2,537.9 MW, followed by 2,990.6 MW in 2023/24. In the current fiscal year 2024/25, Nepal’s hydropower capacity has climbed to 3,390.0 MW, marking a historic milestone in the country’s energy sector.

The sustained rise in installed capacity highlights hydropower’s expanding role in driving Nepal’s economy.

Reliable electricity supply has reduced power shortages, supported industrial activity, and improved the investment climate, particularly in energy-intensive sectors such as manufacturing, cement, tourism, and information technology services.

Economic Impact and Energy Security

Hydropower development has significantly strengthened Nepal’s energy security by reducing dependence on imported fossil fuels.

With domestic electricity generation rising, Nepal has curtailed electricity imports during the wet season and has begun exporting surplus power to neighboring markets, generating foreign exchange earnings.

Energy experts say that stable electricity availability has helped lower production costs for businesses, enhanced productivity, and supported job creation across multiple value chains, from construction and engineering to operations and maintenance.

The hydropower sector has also become a major destination for domestic and foreign investment. Banks and financial institutions have increased lending to hydropower projects, while independent power producers continue to expand capacity, contributing to capital formation and long-term economic growth.

Clean Energy and Climate Commitments

Hydropower’s expansion aligns closely with Nepal’s climate and environmental goals. As a renewable and low-carbon energy source, hydropower plays a critical role in reducing greenhouse gas emissions and supporting Nepal’s commitments under global climate frameworks.

With climate change intensifying the risks of floods, glacial lake outburst floods, and erratic weather patterns, policymakers emphasize the importance of clean energy pathways that minimize environmental impact while supporting economic resilience.

“Hydropower is not only about electricity generation; it is about building a green economic foundation,” energy officials say, noting that clean energy development strengthens Nepal’s position as a climate-responsible economy.

Supporting a Greener and Prosperous Nepal

The growing hydropower capacity is increasingly linked to broader national objectives, including green growth, regional connectivity, and inclusive development. Electrification of transport, expansion of electric cooking, and increased use of electricity in agriculture and small industries are expected to deepen hydropower’s economic impact.

Government data show that rising electricity availability has already supported the replacement of imported liquefied petroleum gas and diesel in households and industries, easing pressure on the balance of payments.

Hydropower is also critical for Nepal’s long-term prosperity as the country moves toward digitalization and service-led growth. Data centers, telecom infrastructure, and emerging digital industries require reliable and affordable power, which hydropower is well positioned to provide.

Challenges and the Road Ahead

Despite the strong growth trajectory, challenges remain. Seasonal generation variability, transmission bottlenecks, land acquisition issues, and delays in project execution continue to affect the sector. Experts stress the need for accelerated investment in transmission infrastructure, energy storage, and cross-border transmission lines to fully utilize installed capacity.

Policy consistency, timely regulatory approvals, and improved risk-sharing mechanisms are also seen as essential to sustaining momentum in hydropower development.

Nevertheless, the steady rise from 1,318.2 MW in 2019/20 to 3,390.0 MW in 2024/25 signals a structural transformation in Nepal’s energy landscape. As hydropower continues to expand, it is increasingly clear that clean energy is not only powering homes and industries but also driving Nepal toward a greener, more resilient, and more prosperous economic future.