Overview

Nepal’s large hydropower potential represents an enormous opportunity for U.S. companies, including in direct foreign investment and/or joint ventures, as well as in the sale of equipment and provision of consultancy services.  Nepal’s hydropower sector is open to foreign investment.  Nepal has some 83,000 MW of hydroelectric potential – more than 40,000 MW of which is commercially viable – but only about 3 percent (less than 1200 MW) of this capacity has been developed.

Although Nepal has greatly reduced power outages in recent years, Nepal still faces some power shortages especially during the dry season (winter), and electricity demand has increased 13 percent annually.  A high voltage cross-border transmission line connecting Nepal to India is being upgraded to expand cross-border electricity trade and has helped stabilize Nepal’s electricity supply.  More lines are planned.  Nepal signed a long-awaited Power Trade Agreement (PTA) with India in October 2014.  The PTA opened opportunities in India’s large – and growing – electricity market to Nepal’s Independent Power Producers (IPPs).  In addition, the Investment Board of Nepal (IBN) signed a Power Development Agreement (PDA) with two Indian power developers in 2014, for the first time allowing foreign developers to build, operate, and export the electricity produced.  With dozens of hydropower projects in the works, there are opportunities for equipment sales and engineering and design consulting services.

Examples of Nepal’s success attracting foreign investment in hydropower development projects and important policy, legislative, and institutional reforms include:

• Financial closure of 900 MW Arun III and the 216 MW Upper Trishuli-1 hydropower projects, both of which are expected to commence operations in 2024-25;

• The $500 million-dollar Millennium Challenge Corporation compact grant will provide transmission system upgrades and a new cross-border connection with India which will allow for expanded regional electricity trading;

• After 20 years of effort to bring Nepal under independent sector regulation, the law establishing the Electricity Regulatory Commission (ERC) was passed, the ERC was established and issued its first consumer tariff order;

• The Government of Nepal has drafted an Electricity Act and is drafting an Energy Efficiency Policy; and

• The Government of Nepal has passed a Public Private Partnership Act to promote foreign investment in infrastructure projects facilitated by the Investment Board of Nepal.
   

Note:  Total market size is a best estimate, derived by subtracting exports from imports, given local production figures are unknown.

Total Imports:  Trade and Export Promotion Center, Nepal

Imports from U.S.:  Trade and Export Promotion Center, Nepal

Leading Sub-Sectors

• Foreign Direct Investment for hydropower power projects
• Consulting services
• Hydropower generation machines
• Turbines
• Generators
• Power control machinery
• Surveying instruments
• Transmission lines
• Heavy machinery and earth moving equipment

Opportunities

Prospects in hydropower equipment sales and consultancies include:  the construction of the 900 MW Upper Karnali Hydropower Project being developed by a consortium of GMR Energy Ltd., India, and the Italian-Thai Development Project Company of Thailand; the 456 MW Upper Tamakoshi Hydropower Project being developed by a Nepali consortium; 216 MW Upper Trishuli-1 Hydropower Project being developed by a consortium of South Korean and Nepali Companies; 140 MW Tanahun Hydropower Project being developed by Nepal Electricity Authority; and the 900 MW Arun-III Hydropower Project being developed by the Indian company Satluj Jal Vidyut Nigam Limited.  Equipment imported for hydropower projects is assessed at a special lower customs duty rate of only one percent.

Nepal has an ambitious target of developing 15,000 MW of hydropower projects during the next ten years.  The Department of Electricity Development issued generation licenses to a total of 198 projects with combined potential output capacity of 7,000 MW.  In addition, the Investment Board of Nepal (IBN) granted an electricity generation license to an Indian developer, SJVN Arun-3 Power Development Company, to generate 900 MW of electricity from the Arun-3 Hydropower Project.  Construction on the project has already begun.  IBN has also signed a Project Development Agreement (PDA) for the 900 MW Upper Karnali Hydropower Project, and IBN is also developing the 327 MW Upper Marsyangdi, 756 MW Tamor, 679 MW Lower Arun, and 750 MW West Seti projects.  The progress on these projects has been slow, but the Government of Nepal still expects to double its current electricity generation capacity by adding 400 MW of hydropower capacity to its grid this year and another 900 MW next year.

Resources

Ministry of Energy, Water Resources and Irrigation

Independent Power Producers’ Association of Nepal