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Renewable Energy Development in Nepal: Potential,
Policies and Challenges
Roshan Kumar Chhetri1*, Aatiz Ghimire 2
1WindPower Nepal Pvt. Ltd., Nepal
2Herald College Kathmandu, University of Wolverhampton, UK
* Author Email: chhetriroshan545@gmail.com
Abstract
This research article provides a comprehensive analysis of the renewable energy sector in
Nepal, focusing on its potential, policies, and challenges. The study explores the current
energy landscape in Nepal, highlighting the dominance of hydropower and the untapped
potential of solar, wind, biomass, micro-hydro, and geothermal energy sources. It examines
various strategic plans and policies that aim to promote renewable energy in the country and
achieve sustainable development goals. Additionally, the article identifies the challenges
hindering the growth of renewable energy, including outdated technologies, limited access to
finance, ambiguous policies, and inadequate infrastructure. Finally, the article proposes
strategic recommendations for advancing renewable energy development in Nepal, including
leveraging climate and energy funds, strengthening donor relationships, fostering public-
private partnerships, collaborating with local governments, and promoting e-cooking
initiatives
Introduction
As of mid-March 2022, an impressive 94.0 percent of Nepal's population had achieved access
to electricity. The Economic Survey, 2021/22 by the Ministry of Finance reveals that the
electricity generation breakdown comprised 2,033 Megawatts (MW) from hydroelectricity,
49.73 MW from solar plants, 53.4 MW from thermal plants, and 80 MW from various other
sources, encompassing renewables and co-generation1. Nepal's geographical and
topographical characteristics position it as an auspicious site for the development of
renewable energy. At present, hydropower stands as the primary energy source in Nepal,
contributing to over 90% of the nation's electricity production. Furthermore, Nepal
demonstrates potential for diversifying its energy portfolio through the utilization of other
renewable sources, including solar, wind, biomass, and micro-hydro
Solar Energy
Nepal possesses a remarkable potential for harnessing solar energy, characterized by an
average of 300 sunny days and 6.8 hours of sunshine. The specific solar photovoltaic (PV)
electricity output capacity in the country falls within the range of 1400 kWh/kWp to 1600
kWh/kWp, resulting in an average daily total ranging from 3.8 to 4.4 kWh/kWp. The
mountainous regions, with their higher elevations and cooler air temperatures, exhibit even
greater potential for PV energy yield. In light of these favorable conditions, the World Bank
identified the hills and lower-elevation mountains with optimal Global Horizontal Irradiance
(GHI) and lower temperatures as the most suitable areas for solar PV system development in
Nepal in 2017.
According to the Solar and Wind Energy Resource Assessment (SWERA) report by the
Alternative Energy Promotion Center (AEPC), the estimated commercial potential for on-
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grid solar PV systems in Nepal is 2,100 MW, as cited by UNEP/GEF in 2008. Moreover,
approximately 25% of Nepal's land area is deemed suitable for Concentrated Solar Power
(CSP) systems, which, even with just 2% utilization of the best solar irradiance, can generate
1829 MW of electricity. The initiative to employ solar PV systems for electrifying rural
households in Nepal was launched after the establishment of AEPC in 1996. As of mid-2021,
AEPC had successfully facilitated the installation of over 961 thousand solar home systems
ranging from 10Wp to 100 Wp capacities throughout the country. Additionally, around 3,000
institutional solar power systems were implemented in schools and health posts, along with
approximately 2,300 PV pumping systems for small-scale irrigation and 200 systems for
drinking water supply. AEPC also implemented 30 off-grid solar and solar-wind hybrid mini-
grids, cumulatively contributing a capacity of 1,262 kW across Nepal2. In Nuwakot, the
Nepal Electricity Authority (NEA) operates a utility-scale solar PV power plant with a
capacity of 25 MW. As of May 2023, 47 solar PV projects in Nepal have obtained survey
licenses, indicating a projected production capacity of 1248.59 MW. Furthermore,
construction licenses have been granted to 21 solar projects, collectively contributing to a
total capacity of 133.56 MW3.
Wind Energy
Nepal possesses a significant and untapped potential for harnessing clean wind energy. A
report published by the Solar & Wind Energy Resource Assessment in Nepal (SWERA) in
2008 identifies a promising area spanning over 6000 square kilometers, characterized by a
wind power density exceeding 300 watts/m2. If only 10% of this region is considered suitable
for wind energy production, Nepal has the capacity to generate up to 3000 MW of wind
energy, translating to a rate of 5 MW per square kilometer. The study highlights the high and
middle mountainous areas of Nepal as the most promising locations for wind energy
development. However, the commercially viable wind energy potential of the country is
currently estimated at a modest 448 MW. Nonetheless, efforts have been made to explore and
utilize wind energy resources in Nepal. The Asian Development Bank has provided support
for the installation of two wind turbines with 5 kW capacities each, accompanied by a 2 kW
solar hybrid system in Nawalparasi, Dhaubadi VDC. Additionally, several pilot projects
focusing on small wind-solar hybrid systems have been implemented in various locations
across the country. Notably, the largest wind-solar hybrid power system in Nepal, boasting an
installed capacity of 20 kW, has been successfully completed and is providing electricity to
90 rural households. As of the fiscal year 2020/2021, the cumulative installation of solar and
wind mini-grid systems, according to estimates by the Alternative Energy Promotion Center
(AEPC), has reached 1262 kW.
Micro and Pico Hydro
Micro-hydro and pico-hydro power systems, which generate electric power below 100 kW
and 1 kW respectively, have emerged as practical and cost-effective solutions to address the
electricity needs of rural and remote areas in Nepal, where expanding the national grid has
been challenging. Leveraging its vast hydropower potential, Nepal has actively promoted the
development of micro-hydropower as a means of rural electrification since the government
initiated subsidization for such projects in 1981. As of 2018, the installed capacity of micro-
hydropower plants, including pico-hydropower plants, reached up to 38 MW, while the
country's untapped potential for hydroelectricity from these small-scale plants exceeds 50
MW.
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Integrating micro and pico-hydropower systems into the national grid would enhance their
sustainability and economic viability. By 2020, four micro-hydropower plants with a total
capacity of 253 kW have been successfully integrated into the national grid, with several
more projects currently under evaluation. The Alternative Energy Promotion Center (AEPC)
collaborates closely with various stakeholders, including local communities, to facilitate and
promote the development of micro and pico-hydro projects throughout the country.
Biomass
According to the Ministry of Finance (2021), Nepal's agricultural sector plays a crucial role
in the country's economy, employing 60.4% of the total population4. The substantial biomass
generated from farming and livestock activities presents an excellent opportunity for utilizing
biogas technology, particularly for cooking purposes, given the country's sizable population.
Around 1.9 million households, accounting for 42% of all households in Nepal, have the
potential to adopt household biogas systems. The Government of Nepal (GoN) has actively
promoted various capacities of biogas plants under the domestic category, ranging from 2
cubic meters to 8 cubic meters, while biogas plants exceeding 12 cubic meters are classified
as Large Biogas Plants. As of 2021, approximately 435,000 household biogas plants have
been successfully installed across Nepal, with a majority of these installations located in the
Terai region. Additionally, there are 343 large-scale biogas plants implemented throughout
the country, with over half of them also situated in the Terai region. These initiatives
demonstrate the government's commitment to expanding the adoption of biogas technology
and harnessing its benefits for sustainable energy and rural development
Geothermal Energy
Geothermal energy refers to the thermal energy that is generated from the sub-surface of the
Earth, where water and/or steam are responsible for carrying this energy to the surface. In the
Nepalese context, geothermal energy can be employed for an array of applications, including
agriculture drying, fish farming, greenhouse heating, snow-melting, and bio-digestion.
Despite the many potential benefits of geothermal energy in Nepal, its use has thus far been
limited to recreational and tourism-related activities such as balneotherapy. Nepal remains in
the early stages of exploring the potential of geothermal energy, and the country's only source
of information regarding hot springs and geothermal resources comes from two research
papers authored by Mahendra Ranjit (2005, 2015). There are 31 major geothermal springs
scattered throughout Nepal, but the government's "Alternative Energy Perspective
Plan" (2002-2017) identifies geothermal energy as a promising alternative energy source for
the country. In 2001, the Government of Nepal initiated geothermal programs through the
Alternative Energy Promotion Centre, which conducted field surveys at two accessible
geothermal locations: Kodari and Singha Tatopani. However, the study was limited to
preliminary chemical analysis of the thermal water. While isotopic studies conducted by
Mahendra Ranjit (2010) suggest the possibility of a vast geothermal reservoir in the Sadhu
Khola - Jomsom area of central Nepal, these qualitative estimates must be confirmed through
geophysical investigations.
Renewable Energy in Various Strategic Plans and Policies
Nepal is resolutely dedicated to achieving net-zero emissions by 2045, as detailed in its
comprehensive Long-term Strategy for Net-zero Emissions. The strategy presents two
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scenarios: the With Existing Measures (WEM) scenario, which evaluates the impact of
intervention measures implemented up to 2020, and the With Additional Measures (WAM)
scenario, which encompasses additional feasible mitigation actions. The strategy's sectoral
approach emphasizes maximizing power generation from renewable energy sources. Key
strategic actions include the development of hydropower plants, integration of variable
renewable energy into power systems, expansion of distributed energy resources, and the
establishment of policies on regional power sector integration, renewable energy integration,
and grid flexibility. For both the WEM and WAM scenarios, the Long-term Strategy
establishes targets for energy generation capacity and investment. By 2050, the WEM
scenario aims for 34 GW of hydropower, 2.1 GW of grid-connected solar PV plants, and 1.1
GW of off-grid and isolated renewable energy power systems. The more ambitious WAM
scenario sets targets of 50 GW of hydropower, 2.1 GW of grid-connected solar PV plants, and
1.1 GW of off-grid and isolated renewable energy power systems. The estimated investment
required to achieve these targets is $9.85 billion for the WEM scenario and $15.05 billion for
the WAM scenario by 2050. Additionally, according to IFC statistics, Nepal has the potential
to attract $46 billion in green and climate-friendly foreign investments from 2017 to 2030.
The Sustainable Development Goal (SDG) Baseline Report for 2030 outlines Nepal's
objectives for increasing electricity access, reducing reliance on firewood for cooking, raising
per capita electricity consumption, and decreasing commercial energy use per unit of GDP5.
Nepal's Second Nationally Determined Contribution (NDC) aims to expand clean energy
generation from 1,400 MW to 15,000 MW by 2030, with 5-10% coming from mini and
micro-hydro power, solar, wind, and bio-energy. This is intended to ensure that 15% of the
total energy demand is met from clean energy sources5.
The 15th National Plan sets targets for augmenting the share of renewable energy in the
country's overall energy consumption and fostering an investment-friendly environment for
renewable energy projects. By 2023/24, Nepal aims to increase the share of renewable energy
in total energy consumption from 7% to 12%. The plan also includes targets for renewable
energy generation, starting from a baseline of 67.8 MW in 2018/19 and reaching 216.6 MW
by 2023/24, 4,000 MW by 2029/30, and 5,000 MW by 2043/447.
In conclusion, these documents underscore Nepal's steadfast commitment to increasing the
proportion of renewable energy in its energy mix. While hydropower remains a focal point,
Nepal is also actively pursuing the development of other renewable energy sources such as
solar, wind, and biomass.
Challenges
The development of renewable energy in Nepal is a multifaceted endeavor that entails
addressing various complex challenges. One of the foremost obstacles is the imperative to
phase out outdated technologies that still dominate the energy sector. Traditional biomass
sources like firewood and agricultural waste persist as the primary energy sources in Nepal.
To forge ahead, it is essential to foster a new technology ecosystem by investing in solar and
wind technologies and constructing the requisite infrastructure to support their deployment.
However, this endeavor necessitates substantial investment and a skilled workforce, which
are not readily available within Nepal.
Effective coordination with local and provincial governments assumes paramount importance
in renewable energy development, as these entities play a critical role in identifying local
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energy needs and prioritizing renewable energy projects. Nevertheless, the centralized nature
of Nepal's energy sector poses challenges to effective coordination with these regional
authorities. Another significant challenge lies in accessing finance, as renewable energy
projects entail substantial upfront investments, while financing options remain limited.
Innovative financing models, such as public-private partnerships, are indispensable to
overcome this hurdle. Gender, equity, and social inclusion (GESI) considerations are vital in
the development of renewable energy. The sector must strive for inclusivity and equity,
addressing the specific needs of women, youth, and other marginalized groups. Nepal also
has a considerable number of households that will permanently remain off-grid. In this
regard, the development of innovative solutions, such as community-based microgrids and
decentralized renewable energy systems, is crucial to ensure that these households have
access to renewable energy. Given Nepal's challenging terrain and underdeveloped
infrastructure, developing renewable energy infrastructure necessitates substantial capital
investment. Consequently, improving road and transport infrastructure becomes imperative to
ensure that renewable energy services can reach remote communities. Moreover, the presence
of ambiguous policies and regulations creates uncertainty and hampers investment in
renewable energy development. Establishing clear and consistent policy directions becomes
pivotal to attract investment and support the growth of the sector.
Way Forward
The following strategies can be explored to facilitate the advancement of renewable energy in
Nepal:
•Facilitating Climate and Energy Funds: The government should establish and implement
a comprehensive approach to effectively utilize climate funds such as the Green Climate
Fund (GCF), International Renewable Energy Agency (IRENA), and Global
Environment Facility (GEF) to support the development of renewable energy projects in
Nepal. Mobilizing resources from these funds will require well-crafted project
proposals, stakeholder engagement, and sound financial management to ensure timely
disbursement of funds.
•Strengthening Donor Relationships: The government should enhance its partnerships
with donors such as the German Agency for International Cooperation (GIZ) and the
UK Foreign, Commonwealth & Development Office (FCDO), while also diversifying
funding sources by engaging with other key donors active in the energy sector, including
the United States Agency for International Development (USAID), Swiss Contact, Japan
International Cooperation Agency (JICA), and Korea International Cooperation Agency
(KOICA). These engagements can be conducted through bilateral and multilateral
approaches.
•Public-Private Partnership with the Private Sector: Explore and develop project banks
on a public-private partnership (PPP) model in collaboration with private sector
companies to attract private sector investment and scale up renewable energy projects in
Nepal. Ensuring the inclusivity of these projects in line with the principles of Gender
Equality and Social Inclusion (GESI) is essential to promote equity and sustainability.
•Collaboration with Local and Provincial Governments: The federal government should
collaborate with local and provincial governments, as stipulated in the new constitution,
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to facilitate efficient resource allocation and strengthen the development of renewable
energy projects in Nepal.
•Engaging Local Governments in MSW-to-Energy Projects: Engage local governments
in Municipal Solid Waste (MSW) to Energy projects, which can promote clean energy
and waste reduction. Local governments can contribute by conducting public awareness
programs on waste segregation and facilitating private sector involvement in addressing
local issues. Strategic engagement with multiple stakeholders, including local
governments, government agencies, and private sector partners, is crucial.
•Promoting E-cooking: The government should actively promote e-cooking as the
primary cooking method, which can mitigate indoor air pollution and improve health
outcomes. Effective awareness campaigns, targeted marketing, and sustained advocacy
efforts are required to encourage the adoption of e-cooking technologies.
•Transitioning from Coal to Biomass Fuel: Prioritize the replacement of coal with
biomass fuel, a cleaner alternative that reduces greenhouse gas emissions and improves
air quality in Nepal. This will necessitate the development of comprehensive biomass
fuel supply chains, strategic partnerships with local communities, and robust regulatory
frameworks to incentivize the use of biomass fuels.
•Encouraging Green Hydrogen: Nepal should promote the use of Green Hydrogen,
produced from renewable energy sources, as a clean and sustainable energy solution.
This entails establishing robust research and development programs, forging
partnerships with private sector companies, and implementing targeted policy
interventions to stimulate the adoption of Green Hydrogen technologies.
•Private Sector Engagement in Micro-Hydro through RESCO Model: Engage private
sector companies in the development of micro-hydro projects using the Renewable
Energy Service Company (RESCO) model. This approach will facilitate access to clean
energy in rural areas and attract private sector investment for the expansion of
renewable energy projects. It requires the formulation of robust business models,
strategic partnerships with local communities, and effective stakeholder engagement to
ensure the long-term viability of micro-hydro projects.
References
1. https://www.mof.gov.np/site/publication-detail/3171
2. https://www.aepc.gov.np/uploads/docs/guidelines-for-the-feasibility-study-of-solar-mini-grid-
projects-1654685783.pdf
3. https://www.doed.gov.np/license/23
4. https://www.mof.gov.np/site/publication-detail/3171
5. https://www.npc.gov.np/images/category/SDGs_Baseline_Report_final_29_June-1(1).pdf
6. https://unfccc.int/NDCREG?
gclid=CjwKCAjw67ajBhAVEiwA2g_jEArAhYAKtIDTB2TGilCtFb3uO_XMPR9R64Xn_0ICdzATNz3
MXAwPxBoCF54QAvD_BwE
7. https://www.npc.gov.np/images/category/15th_plan_English_Version.pdf
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