Nepal: South Asia Subregional Economic Cooperation Power Transmission and Distribution System Strengthening Project

Energy / Electricity transmission and distribution

Nepal is a landlocked, mountainous country located between the large and fast-growing economies of the People's Republic of China to the north and India to the east, west, and south. Its gross national income per capita was only $960 in 2018. With deepening economic uncertainties due to the coronavirus disease (COVID-19) pandemic, compounded by social and health emergencies, the Government of Nepal is facing greater difficulties in pursuing an accelerated growth path for Nepal to become a lower middle-income country by 2030, with a per capita gross national income of at least $1,026. The Government of Nepal has long recognized that the development of its large hydropower potential is an important cornerstone for poverty reduction and economic growth.

Following years of facing chronic electricity shortages, especially during dry winter months (October to March), Nepal made significant improvements in electricity supply during fiscal year (FY) 2017 and FY2018. These improvements were achieved through a combination of (i) increased electricity imports from India of about 400 megawatts (MW); (ii) improved transmission capacity and operational flexibility by commissioning new transmission facilities; and (iii) better load management involving major industrial customers. While there is currently no significant gap between electricity demand and supply, the transmission and distribution systems need further strengthening to increase network capacity and redundancy and to eliminate any bottlenecks between generation hubs to load centers. Also, although 78% of Nepal's population has access to grid-supplied electricity, the distribution systems require immediate upgrading and expansion to improve the reliability and quality of supply and to facilitate expected future demand growth. These investment requirements over the next 10 years until 2030 are beyond the budgetary resources of the government. At the same time, the investment environment in the sector, including regulation, is not sufficiently mature to attract private sector capital and participation at the level required, particularly in the transmission and distribution subsectors. In summary, the ongoing energy sector challenges in the power system can be characterized by (i) limited generation capacity, especially during the dry season; (ii) insufficient transmission and distribution network capacity; (iii) high technical and commercial losses because of deteriorated and under-capacity network assets, poor billing practices, and collection inefficiencies; (iv) inadequate tariffs impinging upon the ability of Nepal Electricity Authority (NEA) to maintain and expand its network to meet growing demand for electricity; and (v) lack of institutional capacity to prepare and implement energy projects using high-level technologies effectively.

The government recognizes the continued need for physical investment in electricity supply infrastructure. These investments are critical to satisfy the country's power supply needs in the longer term and to provide universal access to reliable electricity supply by 2030. These investments will also contribute to promoting sustainable energy for all (Sustainable Development Goal 7: ensure access to affordable, reliable, sustainable, and modern energy for all) and to achieving Nepal's Nationally Determined Contributions to the United Nations Framework Convention on Climate Change to reduce the country's dependency on fossil fuel by 50%. The focus of Nepal's power system investment program is now gearing toward delivering a reliable and high-quality supply of electricity to domestic consumers and positioning the country to become a net energy exporter. In 2018, the Government of Nepal initiated plans to install an additional 15,000 MW of generation capacity by 2028 to meet domestic demand and to export surplus electricity to India and also to Bangladesh. In this regard, the government will support the construction of selected storage-type hydropower plants while encouraging the private sector to invest in run-of-river hydropower projects and other renewable energy sources.

Power system transmission capacity increased

System losses reduced to 25% in Province 2

(2017 baseline: 31.3%)

Annual per capita electricity consumption in Nepal increased to 700 kWh by 2028

(2018 baseline: 198 kWh)