Nepal’s Hydropower Ambitions and Regional Energy Trade

Nepal’s hydropower sector has quietly become one of South Asia’s more significant success stories in cross-border energy cooperation, even as the country’s own energy security remains only partially secured. As of March 2026, Nepal’s installed hydropower capacity had reached approximately 4,105 megawatts, up from roughly 700 megawatts fifteen years ago, according to sector data reported by Nepali Times.

The scale of untapped potential remains considerably larger; Nepal’s technically and economically feasible hydropower capacity is estimated at around 43,000 megawatts, out of a theoretical potential of roughly 83,000 megawatts.

The most consequential development in recent years has been the steady expansion of cross-border power trade with India. Nepal now exports an average of around 1,000 megawatts daily to India, with total approved export capacity exceeding 1,010 megawatts following an additional 200-megawatt allocation approved for the 2025 export season.

India’s own stated long-term ambition is to import as much as 10,000 megawatts from Nepal, a target that would require substantial further investment in Nepal’s generation capacity and cross-border transmission infrastructure, including agreements signed between India’s Power Grid Corporation and the Nepal Electricity Authority (NEA) in 2025.

More notable still has been Nepal’s emergence as an electricity exporter to a third country. In November 2024, Nepal exported power to Bangladesh for the first time, routed through India’s transmission grid under a trilateral power-sharing arrangement between the NEA, Bangladesh’s power authority, and India’s state utility.

That arrangement has since expanded; from June 2026, Nepal began exporting 60 megawatts to Bangladesh under a five-year agreement, up from the initial 40 megawatts, following further rounds of the Nepal-India-Bangladesh Joint Steering Committee. For Bangladesh, which faces electricity demand projected to reach 40,000 megawatts by 2041 and remains heavily dependent on imported fossil fuels, Nepali hydropower offers a comparatively low-cost, renewable alternative, priced in earlier phases at roughly $0.064 per kilowatt-hour.

The financial returns for Nepal have grown accordingly. According to NEA data, Nepal earned NPR 29.32 billion from electricity exports to India and Bangladesh combined in the fiscal year ending mid-July 2026, a 67.96 percent increase over the previous year and the highest annual export revenue the NEA has recorded. The NEA has attributed this growth to increased domestic generation, expanded cross-border transmission infrastructure, and improved energy trading arrangements.

These achievements, however, sit alongside a structural vulnerability that receives less attention; nearly 90 percent of Nepal’s electricity comes from run-of-river hydropower plants, whose output depends heavily on seasonal water flow. During the monsoon, Nepal typically holds a surplus of around 1,200 megawatts available for export. In winter, by contrast, the country still requires electricity imports from India to meet domestic demand. This seasonal asymmetry means Nepal’s role as a regional power exporter, while real, remains partial and weather-dependent rather than a settled year-round arrangement.

There is also a broader regional dimension worth noting. Discussions around a wider South Asian power grid, one that would allow Nepal’s and Bhutan’s hydropower resources to be shared more systematically across the region, have gained periodic attention, including a public call from Bangladesh’s Chief Adviser for such a framework.

A parallel project, the Sunkoshi-3 hydropower scheme, is reportedly being discussed as a joint venture between Nepal, Bangladesh, and India, though it remains at an early collaborative stage rather than under construction.
What this pattern of cooperation also makes clear is the limited extent to which South Asia’s regional energy trade currently functions as a genuinely region-wide system, rather than a set of bilateral and trilateral arrangements clustered around India as the central transmission hub.

Pakistan, along with several other South Asian states, remains outside this emerging hydropower trade network entirely, a reminder that regional connectivity in South Asia continues to develop along largely separate tracks rather than through any unified framework. Whether Nepal’s hydropower sector eventually anchors a broader regional grid, or remains confined to its current bilateral and trilateral arrangements, will depend substantially on transmission infrastructure investment and political coordination that has, to date, developed unevenly across the region.