The amount of energy production and consumption is directly linked to the economic, social development and prosperity of any nation in today's modern era. It has become universally accepted that energy production and intensive use are essential for moving forward on the path of prosperity while pursuing the goals of economic development. The world, which has been focused on energy consumption, has recently focused on the production and use of clean energy.

Nepal has also been giving due importance and place to the development and promotion of the energy sector in its journey of economic progress. The combination of abundant water resources and natural geography has established Nepal as a country with great potential to produce hydropower towards clean energy.

Establishing this potential as a means for economic progress, Nepal has taken important steps in the development and promotion of the hydropower sector after 2049 BS.

Looking at the production and consumption of energy, even now, about ninety percent of Nepal's energy demand has been met from traditional energy sources including firewood, and petroleum energy sources such as petrol, diesel and gas. However, as electricity production gradually increases through the development of hydropower projects, the share of electricity in total energy consumption is also increasing.

As the intensive use of electricity in industry, transport and domestic sectors is increasing, the share of electricity (especially hydropower) in total energy consumption will continue to increase. The potential of hydropower available in Nepal and the recent national efforts to address the energy demand in industry, transport and domestic sectors through electrical energy are also ongoing.

Development and expansion of the electricity sector

Up until 2049 BS, the state had invested and controlled the development of the electricity sector, but with the implementation of the Electricity Act, 2049, the state had opened up the participation of the private sector in the development of the electricity sector in a promotional role. Although all sectors of electricity production, transmission and distribution have been opened up for private sector participation, in recent times the participation of the private sector has been focused on electricity production.

Among the transmission and distribution of electricity, proposals for participation in electricity transmission have started to be received from the private sector in the last few years. The entry of the private sector in the electricity distribution sector has not been opened up yet.

Due to the open and liberal system of licensing under the Electricity Act, 2049, there is enthusiastic participation of the private sector . Therefore, a situation has been created for significant electricity generation . The capacity of hydropower generation, which started with 500 kilowatts in BS 1968, reached 665 megawatts by BS 2068, a century later.

The capacity of hydropower generation, which started with 500 kilowatts in BS 1968, reached 665 megawatts by BS 2068, a century later. Due to the enthusiastic participation of the private sector, the total installed capacity of hydropower by BS 2078 has reached 2033 megawatts and by BS 2082 Mangsir . The state also has a policy of promoting solar power projects . Accordingly, solar power projects with a total installed capacity of 142 megawatts are in operation . 

The policies adopted by the state on a regular basis have played a major role in ensuring and promoting significant participation of the private sector in electricity generation. Nepal Electricity Authority has adopted a policy of taking market risk by arranging for the purchase of electricity generated by hydropower projects through power purchase and sale agreements. Due to the same policy, an environment has been created for promoters, banks and financial institutions to invest in the development and construction of electricity generation projects.

Although the domestic consumption of electricity is low, with the aim of expanding the potential for export and domestic consumption, Nepal Electricity Authority has already taken market risk by entering into power purchase agreements with an installed capacity of about 11,400 MW.

Therefore, the participation of banks and financial institutions in electricity generation projects has also increased significantly, making it possible to have easy access to investment. In line with the state's policy of providing investment opportunities to the general public in hydropower projects, the general public has recently been provided with investment opportunities through initial public offerings (IPOs) in almost all power generation projects.

This has also led to an increase in the enthusiastic participation of the general public in investment. Along with the construction and development of power generation projects, the capacity of construction entrepreneurs and consultants who conduct studies to build power projects has also expanded and developed, thereby enhancing the national capacity to develop and construct power projects. In the last two decades, maximum mobilization of national capital in hydropower generation has resulted in the expansion of the construction industry and a solid contribution to the economy through the consumption and export of the generated electricity.

In the context of Nepal, the Nepal Electricity Authority has almost a monopoly on the transmission and distribution of electricity. Along with the development and expansion of power generation projects, the Nepal Electricity Authority has also been developing and expanding transmission and distribution infrastructure by mobilizing the resources of the Government of Nepal and various other multinational donor agencies. As a result of this, in the year 2000, By 2082, electrification in Nepal has reached more than 98 percent.

Although electrification through the national grid has not yet been completed in some places in some local levels, access to electricity is provided through off-grid power projects. The Nepal Electricity Authority, which is transmitting electricity through transmission lines ranging from 33 kV to 220 kV, has rapidly advanced the construction of transmission projects in various river corridors and other places with a capacity of 220 kV and 400 kV, taking into account the recent increase in electricity generation and the identification of transmission lines required for transmission of electricity in the future.

Along with the Nepal Electricity Authority, the National Transmission Grid Company, which was established with the aim of transmitting electricity, is also constructing transmission lines in various river corridors. The grid company, which aims to build transmission lines on a commercial basis, is forced to rely solely on financial resources received from the Government of Nepal to build transmission lines due to the lack of electricity transmission tariff arrangements.

If the private sector can establish its place in electricity transmission and trade, it will be easier to achieve the objective of realizing the country's economic prosperity through electricity generation. Until there is a system for determining tariffs, the grid company will not be able to develop transmission lines through public-private partnership and private investment. It is necessary to prepare a system for determining and distributing electricity transmission tariffs as soon as possible to involve the private sector and grid companies in the development of transmission lines.

In addition to transmitting electricity within Nepal, the Government of Nepal and the Nepal Electricity Authority are implementing transnational electricity transmission projects in various places to export the excess electricity consumed here to neighboring countries. It is certain that these transmission lines will play a special role in increasing national income by developing the hydropower capacity available in the country and selling electricity in the international electricity market.

Looking at the progress of transnational transmission line projects that have been implemented and are planned to be implemented in the future, the possibility of selling electricity generated in Nepal in the international electricity market has increased and is moving in a positive direction.

Electricity is being distributed through Nepal Electricity Authority, Butwal Power Company Limited and community electricity distribution organizations. However, in most areas of the country, only Nepal Electricity Authority has been distributing electricity. Nepal Electricity Authority has been mobilizing its own resources, the Government of Nepal and multinational donor agencies in the development of the electricity distribution system. Continuous investment in distribution infrastructure has led to a significant expansion of the distribution system.

The quality of electricity in rural areas is low compared to cities with high population. Recently, Nepal Electricity Authority has been investing heavily to improve the quality of electricity and the reliability of electricity supply in urban areas. With the development and expansion of the distribution system, per capita electricity consumption has increased more than three times in the last ten years and reached 465 kilowatt hours in 2025.

Electricity trade

Nepal Electricity Authority is the only organization in Nepal that buys and sells electricity. Recently, the Nepal Electricity Authority has not been able to conclude power purchase and sale agreements for projects that have obtained survey licenses and production licenses for electricity generation. Due to this situation, there has been a demand to open up electricity trading from the private sector and provide electricity trading licenses to the private sector.

Although the existing Electricity Act does not provide for electricity trading licenses, in view of the demand of the private sector and the issuance of large-scale electricity generation licenses, the proposed Electricity Bill proposed the provision of electricity trading licenses with the aim of providing trading licenses to the private sector as well.

With the construction and additional availability of international electricity transmission lines, providing trading licenses to the private sector so that electricity can be purchased and sold in the international electricity market, there is a possibility of reducing the need for the Nepal Electricity Authority alone to bear market risks and facilitating easy management of electricity market risks. With the provision of electricity trading licenses, there is also a possibility of identifying and constructing additional international electricity transmission lines by joint ventures of the private sectors of both countries.

Therefore, it is necessary to open up the electricity trading license and positively welcome the participation of the private sector in it and make necessary legal arrangements for it. When the electricity trading sector is open, there will be a situation where more possibilities will open up in the electricity sector. However, as the electricity trading sector is being opened up, the Nepal Electricity Authority should analyze the situation where the Nepal Electricity Authority has already taken the market risk by entering into power purchase agreements and ensure its fair share in the trade on a priority basis.

In Nepal's electricity sector, there has been enthusiastic participation of the private sector in the development of hydropower and solar projects towards electricity generation. It has also become necessary to adopt the right policy at the right time, keeping in mind the development of green hydrogen and other latest technologies that are under research in the field of electricity generation around the world.

There has been a clear need to prioritize the development of reservoir-based projects by preparing a tariff structure that makes reservoir-based projects financially attractive towards hydropower generation. There is a great need to simplify land acquisition and forest use to create a situation where reservoir projects and transmission lines can be completed on time.

Nepal's goal of producing and consuming clean energy and achieving economic prosperity through energy production can be achieved through the development and expansion of the electricity sector. In the context of the lack of financial resources for the Nepal Electricity Authority and grid companies in the transmission of electricity, it is time to make appropriate legal and tariff arrangements to attract the private sector to the transmission business for the rapid development of the electricity sector. Even though more than 98 percent of the country is electrified, there is a need to focus on increasing the quality and reliability of electricity supply in rural areas with tourism and other industrial potential and increasing economic activities in those areas.