Choosing the Right Power Project

Power-sector experts and professionals have long debated what types of power projects Nepal should prioritize. To answer that, we must first ask a more fundamental question: What is the purpose of developing power projects in the first place? Once this purpose is clearly understood, it becomes easier to determine the kinds of projects Nepal should pursue.

The primary objective of developing power projects is to meet the current and future electricity  demand of households, businesses and industries. The availability of quality power at an affordable  rate will boost economic activities to foster economic development. Electricity is essential for  modern living: lighting, cooking, communication, entertainment, and operating a wide range of home appliances. For businesses and industries, reliable and affordable electricity is the foundation of productivity and growth. After fulfilling the domestic demand, electricity can be exported to the  neighboring countries, especially India and Bangladesh, as a commodity, helping them to fulfill  their requirements to replace fossil fuels contributing to reduce carbon emissions with a noble  cause to contribute to net-zero ambition.

Since the primary goal of Nepal’s power projects is to meet domestic demand, it is essential to  understand national demand and supply patterns. Nepal typically experiences a small morning peak 
and a much larger evening peak, while daytime demand is generally higher than nighttime demand. 
Seasonal factors also play a significant role. As the use of air conditioning rises, electricity  consumption increasingly fluctuates with temperature. Demand climbs during hot summers and cold winters, while it remains moderate during the shoulder months. On the supply side, Nepal faces major seasonal imbalances due to the heavy dominance of run-of-river (RoR) hydropower
projects. As shown in Graphs 1 and 2, electricity generation during the dry months falls to about one-third of wet-season output. These large seasonal fluctuations create significant operational challenges and heighten Nepal’s dependence on India for energy management.

Nepal’s power system has a peak load of around 2,400 MW, with average daily demand of about 2,000 MW. Although Nepal’s installed capacity is roughly 3,500 MW, dry-season generation falls to just about 1,000 MW. In contrast, wet-season production exceeds 3,000 MW, assuming some plants are offline for technical or other reasons. This results in more than 1,000 MW of surplus during the wet months and more than 1,000 MW of deficit in the dry months.

To address this demand–supply mismatch, Nepal must rethink the types of power projects that it has been prioritizing. Continuing to develop simple RoR plants will only deepen the imbalance and  increase dependency and vulnerability within the power sector. In recent years, the Nepal  Electricity Authority (NEA) has even instructed power plants to operate below capacity during the 
wet season due to the inability to sell all available electricity—either domestically or across the 
border. This has directly affected the expected revenues of hydropower companies. The domestic 
power system needs dispatchable energy, which can be produced when there is more power demand and withheld when demand falls. Therefore, to correct this mismatch on energy demand and supply, the country should prioritize seasonal or monthly storage hydro projects or pumped-storage projects. There is also growing debate about large-scale energy storage systems, with or without solar components. While solar-battery systems can help manage daily peak load, they do not resolve seasonal imbalances. Hence, battery storage systems are somehow like daily peaking ROR hydro projects with about four hours of peaking capacity.

If we consider the type of power projects Nepal should develop assuming unrestricted access to the  Indian market, the picture will be a little bit different. For this, Nepal must factor in India’s  demand–supply dynamics and its time-of-day electricity tariffs for better value realization.

India has added a substantial amount of solar capacity in recent years—now exceeding 125,000 MW. This expansion has created surpluses during daylight hours (solar hours) and deficits during 
non-solar hours. This has resulted in sharp variations in electricity prices. Daytime prices in the  Day Ahead Market are often close to 1 Indian rupee (INR), while prices during non-solar hours are  many times higher, as shown  in Graph 3. With further solar capacity additions expected, this price  gap is likely to widen.

Given these market trends, continuing to build simple run-of-river (RoR) projects would be risky. 
Nepal could end up spilling power during solar hours for half the year because India will already have excess supply, pushing prices down to nominal levels. On the other hand, there will be strong demand and attractive tariffs during non-solar hours, when daily-peaking hydropower—not simple RoR—can deliver far better returns.

Nepal should therefore gradually halt the development of simple RoR projects, as far as technically 
feasible, and prioritize monthly/seasonal storage and pumped-storage hydropower for domestic needs. These projects also offer major advantages for cross-border electricity trade because of their 
dispatchable nature. India itself is heavily prioritizing pumped-storage to manage its emerging 
power challenges.

If we are focusing on power export, after fulfilling domestic requirements, daily peaking hydro  projects becomes particularly important. These projects are simpler to develop than large storage  projects and generate much higher value compared to RoR plants.

In addition, for system stability, better energy mix, and smoother operations, Nepal should 
consider other sources of power  at an optimum proportion like distributed solar, wind, and battery 
storage, which can also help reduce dependence on India, for domestic power supply.

(This opinion article was originally published in December 2025  issue of New Business Age magazine.)