Nepal’s Ambitious Hydropower Targets for 2035: A Path to Sustainable Prosperity

Nepal, a nation blessed with vast river systems, possesses immense hydropower potential estimated at 83,000 Megawatts (MW). This is comparable to Norway’s potential of 90,000 MW. However, the contrast is stark: Norway, a global leader in hydropower, supplies over 90% of its domestic energy needs with some of Europe’s cheapest and cleanest electricity. Meanwhile, 15% of Nepal’s population lacks reliable electricity, and many rural areas remain underserved. Norway has developed over 95% of its economically viable hydropower capacity, while Nepal has harnessed less than 5%. Norway’s success offers a compelling model for Nepal’s journey toward energy independence and economic growth through clean energy.

Obstacles to Unlocking Nepal’s Hydropower Potential

Nepal’s progress in hydropower development has been hindered by significant challenges over the past two decades. Political instability, marked by frequent government changes and inconsistent policies, has deterred long-term planning and foreign investment. Despite these barriers, recent improvements in transmission line infrastructure, regional energy cooperation, and streamlined bureaucracy are creating a more favorable investment environment - in November 2024, Nepal received its first BB- rating from Fitch with a stable outlook. A turning point came on January 17, 2025, when Prime Minister K P Sharma Oli unveiled a bold roadmap to generate 28,500 MW of hydropower by 2035, signalling renewed political will and ambition.

The 2035 Vision: Transforming Nepal’s Energy Landscape

Nepal’s 2035 target of 28,500 MW of hydropower is a dramatic increase from its current capacity of approximately 3,000 MW. This ambitious target underscores the government’s commitment to infrastructure development and investment. Surplus electricity will be exported to neighboring countries, particularly India, where demand for clean energy continues to grow. Cross-border energy trade agreements are already in place, positioning hydropower as Nepal’s key export commodity. In 2024, for the first time Nepal has become a net exporter of electricity. Furthermore, the government has prioritized universal electrification, envisioning reliable and affordable electricity for every household by 2035.

Climate Benefits: A Cleaner Future

Hydropower is a clean, renewable energy source that can significantly reduce reliance on fossil fuels, both domestically and in importing countries. By transitioning to hydropower, Nepal could prevent millions of tons of CO2 emissions annually, contributing to the global effort to limit temperature rises. Properly managed hydropower projects can also protect river ecosystems, reducing the environmental degradation often associated with coal and oil-based energy production.

Economic Growth: Unlocking Opportunities

Nepal’s hydropower development has the potential to transform its economy. With GDP per capita currently around $1,300 (2023), conservative estimates suggest that hydropower could contribute an additional $300–500 per capita annually by 2035. The construction and operation of hydropower plants will generate thousands of jobs, from skilled engineering positions to local labor opportunities. Indirect employment in sectors such as transportation, construction, and services is also expected to rise. Furthermore, cheap, clean energy can attract high-tech industries looking to locate data centres and AI capability close to sources of abundant, cheap, clean energy, spurring new industries and foreign investment in Nepal.

Overcoming Challenges: A Roadmap to Success

While the vision is ambitious, achieving these goals will require overcoming challenges:

• Infrastructure Development: Building dams, transmission lines, and access roads demands substantial investment and time. Projects like the Nepal-India Cross-Border Transmission Line, which are already underway, are critical for efficient energy evacuation and export.

• Environmental and Social Impact: Large-scale hydropower projects can disrupt ecosystems and displace communities. Adopting sustainable practices and engaging with local stakeholders will be essential to mitigate these impacts.

• Securing Financing: Hydropower projects have a front-loaded cost structure. Attracting foreign private investors, multilateral banks, and development finance institutions is crucial. Expanded use of risk mitigation instruments, standardisation of contractual agreements, blended finance initiatives, streamlined regulatory processes and political stability will be key to securing the necessary funding.

Eaton Capital’s Role

Eaton Capital Partners, a specialist advisory and asset management firm, is at the forefront of supporting Nepal’s hydropower ambitions. By spearheading blended finance initiatives, Eaton Capital attracts foreign investment while ensuring projects adhere to environmental and social sustainability standards. Leveraging frameworks like the IFC Performance Standards and Equator Principles, the firm ensures that projects not only meet global best practices but also deliver long-term benefits for Nepal’s communities and economy.

A Bold Future for Nepal and South Asia

Nepal’s hydropower targets for 2035 represent a transformative opportunity to reshape its energy and economic landscape. By harnessing its rivers for clean energy, Nepal can address domestic energy needs while emerging as a key player in South Asia’s renewable energy market, increasing the region´s sustainable energy access and security, as Norway has done in Europe. With enhanced political stability, improved infrastructure, and regional cooperation, Nepal stands poised to accelerate progress and achieve its ambitious goals.

Eaton Capital Partners is proud to be playing a role in this journey, driving sustainable investments, fostering international collaboration, and ensuring environmental stewardship. We are committed to the localization of development, where decision-making power and resources are increasingly directed to local governments, civil society organizations, communities, and private sector entities. By taking this approach, Eaton Capital Partners is supporting Nepal to achieve its hydropower targets, paving the way for long-term climate resilience and economic prosperity. The rewards—from environmental preservation to substantial GDP growth—make this effort invaluable for Nepal and the broader South Asian region.

Scott Roantree is the Managing Partner of Eaton Capital Partners. Discover more about Eaton Capital Partners at www.eatoncapital.com.au. Join us in building a sustainable, prosperous future.