Power policy

The Renewable Energy Subsidy Policy 2016, which is still in force, is relatively stable and clear for market entrants. Technologies that qualify for subsidies include mini- to small-hydro and improved water mills, solar photovoltaic (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 that are off-the-grid. The rates are rarely adjusted, and not cost-reflective. The government has set up various funds for the development of renewables, such as the Central Renewable Energy Fund and the Small Hydro Power Fund. A lack of mobilization of credit and high dependence on subsidies have hampered further investments in renewable energy.

Power prices and costs

The electricity prices are relatively low compared with neighboring countries such as India, mainly because hydro dominates Nepal’s capacity mix and runs on low marginal cost. In August 2021, the Nepal Electricity Authority (NEA) announced a waiver on electricity charges for households consuming less than 20 kilowatt-hours a month, except for a service fee of 30 Nepalese rupees ($0.23). This would mean that over 42% of NEA’s customers would not have to pay any tariff except for the service charges.

Power market

Hydro generates more than 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 hydropower has zero emissions, Nepal experiences serious shortages of electricity: many people continue to have 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 are 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 is one of the barriers to accelerating economic growth. The electrification rate stands at less than 90%, 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 42 gigawatts 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 17,400 gigawatt-hours 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 have been affected by natural disasters in the past and in recent years have been impacted by the Covid-19 pandemic. Tariffs are not always considered to be sufficient to pay back investors within a reasonable timeframe. As for foreign direct investment, China is a new entrant with mature hydro technology and capital, but the cultural attachment of Nepal with India might prevent Chinese influence from strengthening.

EV market

In 1993, Nepal kicked off a project with the support of the US Agency for International Development in order to promote electric three-wheelers. Nowadays, around 600 electric three-wheelers are operating around the Kathmandu Valley region. In order to boost e-bus adoption, the government signed an agreement with a private company to bring 40 e-buses into the country by the end of 2022. In terms of charging infrastructure, NEA is aiming to install 50 charging stations by end-2022 and it also provides the whole infrastructure for private EV owners to install chargers in their homes.

EV policy

Nepal has a target of achieving 25% EV sales in total new sales by 2025 for all private passenger vehicles including two-wheelers. The country also aims for 20% of public vehicle sales to be electric. By 2030, the country aims to increase sales of electric vehicles to cover 90% of all private passenger vehicle sales, including two-wheelers and 60% of all four-wheeler public passenger vehicle sales (the public passenger target does not take into account electric rickshaws and electric tempos, small three-wheeler commuter buses).

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.