Nepal RE Law/Policy

Table of Contents

Last updated Aug. 8, 2023.

Electricity Sector Overview

Most households and businesses in Nepal do not have adequate and reliable access to electricity. Nepal relies heavily on traditional biomass (80% of energy consumption) and imported petroleum (12% of energy consumption) to fulfill its energy needs. Less than 5% of Nepal’s energy consumption is in the form of electricity. Nepal has been facing an energy crisis, with demand for energy greatly outpacing the supply, to which increased renewable energy development could pose an solution.1Yugottam Koirala, Nepal’s energy policy in 2023 and beyond, Nepali Times (Jan 1 2023), https://www.nepalitimes.com/news/nepal-s-energy-policy-in-2023-and-beyond; Mitigating the current energy crisis in Nepal with renewable energy sources, SDG Resource Centre, https://sdgresources.relx.com/articles/mitigating-current-energy-crisis-nepal-renewable-energy-sources

Nepal is highly reliant on hydropower for its electricity supply, with most of its hydropower generation coming in the form of run-of-the-river plants. As of 2021, Nepal gets 98.04% of its electricity mix from hydropower, 1.8% from solar, and 0.16% from wind. Nepal also imports electricity from India, in an increasing trend over the years.

Of Nepal’s total installed electric capacity of 1,073 MW in 2019, the publicly-owned Nepal Electricity Authority (NEA) owned 562 MW and the private sector owned the remaining 511 MW. Planning, developing, implementing, and operating the transmission system in Nepal falls under the purview of the NEA, which also has a de facto monopoly on distribution in Nepal. The lack of transmission line infrastructure to deliver electricity from generation plants to load centers has been identified as a significant bottleneck that also impedes investment in new hydropower development.2Nepal Energy Sector Assessment, Strategy, and Roadmap, ADB (Mar 2017), https://www.adb.org/sites/default/files/publication/356466/nepal-energy-assessment-road-map.pdf / Backup PDF.

NEA has been criticized for poor operational and financial performance due to the lack of tariff adjustment, high costs of service, high system losses of over 24%, and increased arrears largely due from the public sector.3ADB, supra.

The following chart and diagram explain the institutional structure of Nepal’s electricity sector:

Source: World Bank: Nepal Energy Infrastructure Sector Assessment

Source: Nepal Energy Sector Assessment, Strategy, and Roadmap, ADB (Mar 2017)

The following charts illustrate Nepal’s electricity mix:

Source: OurWorldinData.org. Click to access interactive graphs.

References

Summary of RE Laws/Policies

There is no specific legal definition of “renewable energy” in Nepal, but wind, solar, and hydro are considered forms of renewable or clean energy.4The legal framework for renewable energy in Nepal, Lexology, https://www.lexology.com/library/detail.aspx?g=108a58c2-be2c-43a9-a6e3-5441557553d0 All Nepal’s energy policies, including those that pertain to renewable energy, are established at the national level.5Lexology, supra.

A new electricity bill has been before Parliament for some time.6Lexology, supra; All water for power in Nepal’s new electricity bill, Earth Journalism Network, September 1, 2020, https://earthjournalism.net/stories/all-water-for-power-in-nepals-new-electricity-bill.

Initial Critique of RE Laws/Policies

The ADB attributes the slow development of hydropower to (1) inadequate planning and investment in generation, transmission, and distribution capacity; (2) concerns about the ability of the Nepal Electricity Authority (NEA) to honor take-or-pay contract obligations; and (3) delays in project development caused partly by legal and regulatory inadequacies.7ADB, supra. Unstable policy and regulations have also been identified as an investment risk posing a challenge to hydropower development.8Urja Nepal: Renewable Energy Integration in Nepal, USAID (May 2022), https://pdf.usaid.gov/pdf_docs/PA00ZKT4.pdf. (Backup PDF)

Between 2001 and 2016 (when the government adjusted electricity tariffs), electricity tariffs remained fixed despite the sharp rise in costs of energy purchases and operations. Nepal needs an automatic tariff adjustment mechanism that accounts for power cost fluctuations.9ADB, supra. The responsibility for building capacity to implement the mechanism and determine the wheeling charges for IPPs using the NEA transmission system would fall to the Electricity Tariff Fixation Commission (ETFC).10ADB, supra.

USAID recommends that Nepal diversify its power generation profile to include other forms of renewable energy besides hydropower to lessen the risk of supply constraint and price volatility due to its current over-dependence on hydropower and imported electricity.11USAID (May 2022), supra. USAID also identifies other policy-level challenges to renewable integration such as the lack of incentives for the private sector (especially potential large-scale private investors), the absence of a feed-in tariff structure, the existence of fossil fuel subsidies, weak environmental regulations, and low priority given to RE in national planning.12USAID (May 2022), supra.

Robust transmission system planning is a prerequisite to upscaling RE in Nepal due to the deficiency in the current transmission system.13USAID (May 2022), supra. There are currently two transmission system master plans, one developed by NEA and one by Rastriya Prasaran Grid Company Limited (RPGCL), both of which prioritize hydropower and neglect comprehensive planning to integrate VRE sources.14USAID (May 2022), supra.

NEA suspended net metering for solar rooftops in July of 2022, and there has been a petition to reinstate it.15Prithvi Man Shrestha, Call for reconnecting rooftop solar plants to grid, Kathmandu Post (Dec 24, 2022), https://kathmandupost.com/money/2022/12/24/call-for-reconnecting-rooftop-solar-plants-to-grid; Bishal Thapa, Nepal: Reinstate Net-Metering for Solar Rooftop, Change.org (Nov 7, 2022), https://www.change.org/p/nepal-reinstate-net-metering-for-solar-rooftop-सोलार-रुफटपको-नेट-मिटरिङको-पुनःस्थापना

In an assessment of Nepal’s generation system, USAID identified several issues16USAID Urja Nepal Project: Assessment of Generation Planning Process and Tools in Nepal (Sept 20, 2022), https://pdf.usaid.gov/pdf_docs/PA00ZKSW.pdf. (Backup PDF):

  • Issues with generation expansion planning policies and studies: There is a lack of coordinated action due to generation expansion planning being undertaken by multiple agencies. The current planning is led by the following entities:
    • Ministry: National Integrated Power Sector Master Plan
    • WECS: Water Resources Master Plan which includes Hydropower Master Plan
    • NEA: Generation Expansion Plan using OptGen and SDDP software
  • Issues with licensing process and current status: Too many licenses are issued and there is a lack of differentiation for technology innovation; improved license monitoring is required. The first-come, first-served process does not account for the techno-economic qualification of the developer—a mechanism is needed to ensure that developer has adequate access to resources required to implement the project. Many licenses are expired or about to expire, and many hydropower plant projects have been delayed.
  • Issues with power procurement planning and tariffs: Again, there is a lack of coordinated action. DOED issues licenses, while the PPA must be signed by NEA, and there is limited discussion between the licensing authority and off-taker during the licensing process, resulting in mismatch between capacity requirement and license issuance.

Energy Efficiency

Although Nepal has been implementing energy efficiency measures for more than a decade, it lacks a nodal agency to lead and promote energy efficiency.17ADB, supra.

Check the following sources:

Renewable Energy Targets

  • 216 MW, 4,000 MW and 5,000 MW for FY 2023/24, FY 2029/30, and FY 2043/44 respectively18The Fifteenth Plan (Fiscal Year 2076/77–2080/81), 2020
  • Ratio of RE in total energy consumption to increase from 7% in 2018/19 to 12% in 2023/2419The Fifteenth Plan, supra.
  • Generation capacity to be expanded to 15,000 MW by 2030, 5-10% from RE sources20Second Nationally Determined Contribution (NDC), 2020; Whitepaper 2018
  • Electricity generation mix to comprise at least 10% contribution from alternative energy sources by 202621National Energy Crisis Mitigation Plan, 2016

Renewable Energy Laws/Policies

General Policies

  • Nepal’s NDCs
  • National Renewable Energy Framework
  • Nepal’s Long-term Strategy for Net-Zero Emissions (Oct 2021)
  • Budget Speech of 2078 (2021)
  • Grid Connected Alternative Electricity Guidelines—2078 (April 2021)
  • The Fifteenth Plan (Fiscal Year 2076/77–2080/81), 2020
  • National Rural and Renewable Energy Programme (NRREP) of Nepal
  • Rural Energy Policy of Nepal (2006)

Bills

  • A Bill to Amend and Consolidate Existing Laws Relating to Electricity

Incentives for RE Development

  • Renewable Energy Subsidy Policy of Nepal (2016)
    • Info / More Info / More Info / PDF / Backup PDF
    • Revises the following policies:
      • Renewable Energy Subsidy Policy of 2012
      • Urban Solar System Subsidy and Credit Mobilization Guidelines
        • PDF (Urban Solar Energy System & Soft Loan Operation Manual)
  • Renewable Energy Subsidy Policy 2069 BS (2013)
    • Info / PDF / Backup PDF
    • Intended to encourage the private sector to expand renewable energy commercialization and RE service delivery to households, communities, and MSMEs in rural areas.
  • Renewable Energy Subsidy Delivery Mechanism 2000

Prioritizing Types of RE

Policy Responses to Energy Crisis

  • National Energy Crisis Reduction and Electricity Development Decade
  • People Investment in Nepal Hydropower
    • Target to develop 10,000 MW of hydropower by 2025
    • Info / Info (p. 26-27)
  • 2018 Whitepaper: Present Situation and Future Roadmap of Energy, Water Resources and Irrigation Sector

Energy Efficiency

Contextual Laws/Policies

Source of summaries: USAID22USAID (Sept 20, 2022), supra. (Backup PDF)

  • Nepal Electricity Authority Act 1984
    • Governs NEA’s management of power supply
  • Electricity Act 1992 and Electricity Rules 1993
    • Governs development and management of Nepal’s hydropower sector; established current license regime
  • Electricity Regulatory Commission Act 2017
    • Established ERC as an independent regulatory body for management of generation, transmission, distribution, and trade of electricity
  • Public Private Partnership and Investment Act 2019
    • Governs projects with capacity greater than 200 MW / hydropower projects having investment cost of more than 6 billion Nepalese Rupees

References