Nepal’s water resources are often termed “White Gold,” a label that implies prosperity for a nation geographically blessed with over 6,000 rivers and rivulets, according to the Water and Energy Commission Secretariat (WECS). While the seminal 1966 doctoral thesis by Dr Hari Man Shrestha established a theoretical capacity exceeding 83,000 MW, subsequent assessments by the NEA and WECS place the economically viable potential at roughly 40,000 MW. Hydropower is thus considered a vital engine, theoretically capable of driving Nepal from least-developed country (LDC) status to a middle-income economy. Yet, despite this potential, the sector remains shackled. While investors from India and Bangladesh scour the region for clean energy to fuel their growing economies, they frequently bypass Nepal for more predictable destinations such as Bhutan or even parts of Africa. The culprit is neither a lack of water nor a lack of capital, but a regulatory stranglehold maintained by a single state-owned entity. Although Nepal sits on a potential fortune of renewable energy, the state-maintained monopoly of the Nepal Electricity Authority (NEA) has transformed from a necessary guardian into a restrictive barrier, driving foreign capital to more liberal environments and leaving Nepal’s economic transformation mired in a legislative quagmire.
Established under the Nepal Electricity Authority Act 1984 and largely untouched by subsequent discussions, including proposals such as the Electricity Act 2023, the state power monopoly functions as the generator, sole transmitter and exclusive distributor of electricity in the Nepali market. It is also the single buyer for all Independent Power Producers (IPPs). In any functioning market, competition drives efficiency; however, in Nepal, the NEA’s monopoly stifles it.
The consequences of this centralisation are severe. According to the Independent Power Producers’ Association Nepal (IPPAN), as of late 2025, Power Purchase Agreements (PPAs) for projects totalling approximately 13,000 MW have been put on hold or remain uncertain. The NEA, citing the risk of surplus power during the wet season, has frequently halted PPA signings or attempted to shift from the standard “Take or Pay” model—where payment for produced energy is guaranteed—to the “Take and Pay” model, which transfers all market risk to private developers. Although the issue of the Take and Pay model has reportedly been resolved, the NEA remains hesitant to sign PPAs, citing the risk of oversupply.
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This creates an investment climate defined by unpredictability. When the sole buyer can unilaterally decide to stop purchasing a product, foreign direct investment (FDI) tends to flee. According to the World Bank’s Nepal Development Update (November 2025), capital expenditure execution remains weak at 63.2 per cent, largely due to challenges across the project cycle, including regulatory roadblocks. The NEA’s conflict of interest is evident: it is tasked with facilitating private investment while simultaneously competing with private producers through its own projects, often enjoying preferential regulatory treatment. As a state power monopoly and single buyer, the NEA creates persistent uncertainty for investors about what happens if their proposals are rejected. In practice, the authority has often refused to buy power indirectly by delaying PPAs on various pretexts.
Nepal’s regression becomes clearer when viewed through the lens of its neighbours. India and Bangladesh are energy-hungry nations committed to green transitions, yet their capital often finds a more welcoming home elsewhere. Tapping into this market and allowing investment inflows into Nepal is imperative. Consider Tata Power, one of India’s largest integrated power companies. While it has a presence in Nepal, its aggressive expansion is more visible in Bhutan. According to The Times of India, in late 2025 Tata Power acquired a 40 per cent stake in the 1,125 MW Dorjilung Hydropower Project in Bhutan, investing approximately INR 1,572 crore. The contrast highlights Bhutan’s streamlined government-to-government (G2G) framework, clear regulatory pathways, synchronised transmission infrastructure with India’s grid, and minimal regulatory friction.
Similarly, Bangladesh’s Summit Group, the country’s largest private infrastructure conglomerate, has announced plans to invest $3 billion in clean energy across South Asia. Although it has expressed interest in Nepal, investment has been stalled by the lack of a trilateral power trade agreement and adequate transmission infrastructure. It took years of diplomatic negotiations merely to begin exporting 40 MW of electricity from Nepal to Bangladesh in June 2025—still a negligible amount compared to Bangladesh’s demand.
Investors act on certainty. In Nepal, they face the outdated Electricity Act 1992, which is inadequate for modern cross-border energy trading. According to the International Monetary Fund (IMF) Executive Board’s 2025 report, Nepal requires ambitious structural reforms to improve the investment climate, specifically by reducing the high cost of doing business and strengthening governance. International firms often perceive Nepal as a country where projects take 12 years to complete—processes that might take only five years elsewhere.
The cost of this monopoly is borne not only by businesses but by ordinary Nepalis. Nepal imports electricity from India during the dry season while wasting surplus energy during the wet season due to insufficient cross-border transmission capacity. This seasonal mismatch drains national resources. According to the World Bank, Nepal’s energy sector struggles with a chronic imbalance between energy consumption and resource endowment. Every megawatt of spilled energy represents lost revenue that could have reduced the trade deficit with India, and every delayed PPA means lost employment opportunities in a country where youth unemployment is fuelling mass migration.
By maintaining the NEA’s monopoly as producer, buyer and distributor, the government effectively limits development to the pace of bureaucracy. The private sector has demonstrated its ability to build hydropower projects faster and more efficiently, currently contributing more than two-thirds of the nation’s power output. Despite this, it continues to face unfair treatment in its own market.
The government must therefore urgently amend the Electricity Bill and create adequate space for private sector participation in construction, trade and distribution to accelerate power sector development. Until the NEA and private players operate on a level playing field, the goal of exporting 10,000 MW of electricity to India within a decade—and further exporting power to Bangladesh—will remain little more than an aspiration.
The author is a research assistant at the Asian Institution of Diplomacy and International Affairs (AIDIA). She recently graduated from the University of Tampa with a degree in Political Science, International Relations and Sociology.
