Given Nepal's vast hydropower potential, the country's energy sector is poised to make a strong contribution to the country's economic development. But years of underinvestment in electricity generation have led to supply shortages. Investments have not kept up with growth in demand, which increases by 9%-10% annually. The Nepal Electricity Authority has performed poorly and incurred heavy financial losses. A poor regulatory environment has added to the sector's problems. Nepal's electricity supply system is among the least reliable in South Asia, characterized by frequent unscheduled interruptions and long periods of scheduled supply outages. While 56% of households have electricity, the electrification process has stalled, mainly because of low generation capacity. A sector that has the potential to contribute significant foreign exchange earnings through power exports instead must import energy at great cost from neighboring India.
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