Hydropower is one of the renewable sources of  energy in the world. It is achieved by converting the kinetic energy of water into electrical or mechanical energy. 16.6% of the total electricity production in the world is served by the hydropower. Similarly, Nepal has been blessed with high potential of water resources, possessed with 2.7% of the world’s fresh water resources. Nepal is the second country after Brazil with more water reserves in the world. Hydropower is the main source of energy in context of Nepal, nearly 90% installed capacity and about 90% generation of the electricity. Thus, hydropower is an eco friendly source of energy with no pollution emitting in air or in land, and it also the most effective method to all.

Now, while talking about history, the availability of water power has long been closely associated with jump-starting economic growth. When Richard Arkwright arranged Cromford Mill in England’s Derwent valley in 1771 to spin cotton and set up one of the world’s first factory systems, hydropower was the energy source he used there. The world’s first hydroelectric power project was developed at Cragside in Northumberland in 1878, England by William Armstrong.

Likewise, in context of Nepal hydropower development initiated on May 22, 1911 i.e. (9 Jestha 1968 BS) by installing 500 kW electricity at Pharping named as Chandra Jyoti. After long duration of 25 years, Prime Minister Dev Shamsher initiated 640 kW, Sundarijal Hydropower plant with the capacity of 900 kW in 1936. Sundarijal, hydroelectricity development in Nepal was once again stopped for decades. Again Morang Hydropower Company, established in 1939, built 677 KW Sikarbas Hydropower plant at Chisang Khola in 1942 though this Plant was fully destroyed by landslide in the 1960s. Nepal Electricity Corporation (NEC) was established in 1962 and was given the responsibility of transmission and distribution of the electricity in Nepal. After a long gap, the hydropower generation capacity of the country prolonged with the construction of the Panauti Hydropower plant (2400 KW) in 1965 and the Trishuli Hydropower plant (24000 KW) in 1967. Recently the biggest hydropower of our country, ‘Upper Tamakoshi Hydropower Project’ of 456MW is in the final stage and all units are already tested and passed. Also, its single unit of 76MW is already connected to the INPS. Before the Upper Tamakoshi Hydropower Plant, Kaligandaki A Hydropower Plant of 144MW was the biggest hydropower plant of the country. Nepal Electricity Authority was created on August 16, 1985 (Bhadra 1, 2042) under the NEA Act, through the merger of the Department of Electricity of Ministry of Water Resources, Nepal Electricity Corporation and associated Development Boards. Ever since NEA established, it has been responsible for the generation, transmission and distribution of electricity. At present it operates two fuel operated plants generating 53 Megawatts of Electricity. The total capacity of the Integrated Nepal Power System (INPS) which NEA operates stands at 1095 Megawatts.

Scope of Hydropower development in Nepal

As we know that, hydropower has a large potential in the context of Nepal. The country’s appraised hydropower potential is to be upwards of 50,000 MW – actual electricity generation from hydropower in Nepal is currently 800 MW from 20 major hydropower plants and  numbers of small and micro hydropower plants. Altogether 6000 rivers counting rivulets and tributaries are present in Nepal. In this way, it offers a great potential for hydropower development in Nepal while storage capacity  is of 202,000 million m^3. The hydropower system is influenced by run-of-river system in Nepal while storage scheme have been benefited to control flood, provide irrigation facility, drinking water supply, navigation, recreation, tourism, aquaculture, food security, health security. energy security, preserve environment and generate bunce. Nepal can generate bunce of up to Rs310 billion per year in 2030 and as high as Rs1,069 billion per year in 2045 if the country is able to sell electricity to India by mobilizing it’s hydropower potential. Nepal Electricity Authority has total installed capacity of about 746 MW and 26 MW operating from mini and micro hydropower plants in hills and mountains of Nepal. This way Nepal has huge scope in the sector of hydropower development.

Challenges of Hydropower development in Nepal

Though Nepal has one of the highest per capita hydropower potentials in the world, it is still back in tapping the rich hydro resources. Through the development of hydropower, a lot of befitting discernment in regard to national economic enhancement could be attained but  there a lot of technical and financial challenges which the hydropower developers could pass through which has been vividly articulated as below:

Technical Challenges

Nepal is a natural hydro resources rich country yet starving for economic prosperity through hydropower development. A lot of technical challenges had to be borne up with for hydropower development. Some of them are listed below:

  1. Fragile Geology
  2. Hydrologic or Hydrological Variability
  3. Elevated Rate of Sedimentation
  4. Geopolitical Situation and Topographical Restrictions
  5. Harsh Environmental Concerns
  6. Lack of Policy Involvement Regarding Hydropower Development
Investment or Financial Challenges

Hydropower financing can be very challenging. While it is a low-cost source of power with low functional costs, it is capital intensive, meaning that a huge or big deal of investment takes place. Some of them are listed below:-

  1. Major Restrictions in Mobilizing Funding from Financial Intermediaries (FIS)
    1. Market failure and portfolio mismatch in financial intermediaries (FIS)
    1. Lack of project finance instrument
    1. Lack of ‘due diligence’ capacity in FIS
    1. Central Bank Guidelines insensate to Power Sector
  2. Foreign Exchange Risk
  3. Repatriation risk
  4. Construction risk (time and cost overturn)
  5. Local  level disputation and risk

Hydropower can play vital or major role to address increasing demand worldwide for clean, reliable, and affordable energy. In present scenario, 733 MW out of 782 MW installed capacity is hydropower. All over 478 MW of hydropower capacity is NEA-owned, while 255 MW is privately owned and manipulated. However, the installed capacity is 1,128.69 MW as of 2019 data and over 20 % of Nepalese remain deprived of grid electricity. Current peak load electricity demand is 1,320 MW while annual energy demand increased by 9% and expected to increase to 2,379 MW by 2022 and 4,280 MW by 2030.

This increase in the production of hydroelectricity will not only attain the demand of the country but also the excess electricity that can be exported and improve our trade loss for the country. To get this, Nepal has to overcome the different challenges by joint efforts from government, other private sectors and financial sectors.


Nepal is gifted with huge hydropower potential. Although being a landlocked country with no known fossil fuel resources signifies the importance of water resources here. Despite some recent successful labors to use these vast water resources for its development, Nepal has not been able to use this enormous resource fully for its economic growth. It is weird that the country has an underperforming power sector with supply shortages, reliability issues, and poor access to electricity, while sitting on an enormous potential to produce hydropower. Adequate supply of power with suitable quality is a prerequisite for any nation to modernize its economy and to sustain economic growth. Nepal’s electric power sector has been trapped in low-level investment stability, the only path to exit from this is injection of public, domestic private, and external agency investment in hydropower development. This situation is changing since 2016, but more strenuous efforts through public intervention are needed to overcome barriers to develop hydropower resources in the country.

Shrija Dhakal Bachelor of Geomatics Engineering, Kathmandu University

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