Power policy

The Renewable Energy Subsidy Policy 2016, in force today, is relatively stable and clear for market entrants. Technologies that qualify for subsidies include mini- to small-hydro and improved water mills, solar PV, solar thermal, biogas, biomass, wind, as well as solar-wind hybrid systems. It provides different levels of subsidy to areas with national grid access or those off-grid. The rates are rarely adjusted, and not cost-reflective. Various funds have been set up by the government for the development of renewables, such as the Central Renewable Energy Fund and the Small Hydro Power Fund. Lack of mobilization of credit and high dependence on subsidies has been hampering further investments in renewable energy.

Power prices and costs

The electricity prices are relatively low compared to neighboring countries such as India, mainly because hydro dominates Nepal’s capacity mix and runs on low marginal cost. In August 2021, Nepal Electricity Authority (NEA) announced a waiver on electricity charges for households consuming less than 20 kWh a month, except for a service fee of 30 Nepalese rupees. This would mean that over 42% of NEA’s customers won’t have to pay any tariff except for the service charges.

Power market

Hydro generates over 99% of electricity in Nepal. No fossil fuel is used for the purpose of powering the Himalayan country, except diesel, which fires back-up generators widely adopted in commercial and industrial facilities and at homes. While hydro power has zero emissions, Nepal experiences serious shortages of electricity: many people remain with restricted access to electricity, and those with access have regular or sometimes erratic blackouts. This is likely to change, as the country builds more hydro and solar PV. Its power generation and transmission is largely bundled and dominated by a single state-owned entity - NEA. Although some independent power producers exist, the country wishes to add more to increase supply. Nepal imports power regularly from India, especially during the dry season. It does not have a domestic wholesale power market yet.

The shortage of power has become one of the barriers to accelerating economic growth. The electrification rate stands at less than 90% now, but the target is for 100% by 2030. As the country recovers from the Covid-19 pandemic, it will need more power and provide opportunities for businesses. Presently, only 2% of the total estimated 42GW of hydro resource is tapped. At this level of availability, and with the ongoing speed of development, the government’s expected electricity consumption projection of 17,400GWh by 2027 may not be met.

Doing business and barriers

Nepal aims to increase foreign investments in the energy sector, both in hydro and non-hydro renewable energy. The country has not been able to attract significant investments so far mainly because of the high risks related to the offtaker, curtailment and volatile foreign exchange rate, as well as inadequate infrastructure and complicated permitting procedures. Projects under construction in the past have faced natural disasters and have now been impacted by the Covid-19 pandemic. Tariffs are not always considered to be sufficient to payback investors within a reasonable timeframe. As for foreign direct investment, China is now a new entrant with mature hydro technology and capital, but the cultural attachment of Nepal with India might prevent Chinese influence from going deeper.

EV market

Nepal aims for 90% of private and 60% of public vehicle sales to be electric by 2030, according to its latest NDC.

EV policy

The country also has interim targets of 25% of all private passenger vehicle sales (including 2-wheelers) and 20% of all public transport vehicle sales to be electric by 2025. Nepal estimates that electrification of its transport fleet could eliminate over 28% of its emissions by 2030. Through this electrification initiative, Nepal expects to not only clean up air quality in its towns and cities, but also reduce petroleum imports from India.

Buildings market

Most of the heating needs of the rural communities are met by burning firewood and cattle dung cakes. In urban areas, electric heating penetration is low, but gradually growing. The government is yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.

Buildings policy

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.