Nepal’s hydropower sector is entering a defining moment. Once regarded primarily as a domestic development necessity, electricity has now emerged as the centrepiece of the country’s long-term economic vision. The government’s recent policy direction signals a decisive shift toward positioning hydropower not only as an infrastructure priority but as a strategic instrument of economic growth and regional engagement. In doing so, Nepal is attempting to transform its natural resource advantage into geopolitical and commercial leverage. As energy policy becomes more centralised and internationally oriented, local communities and provincial governments increasingly seek greater participation in decision-making and a clearer share of economic returns. The emerging debate is therefore not merely about electricity generation. It is about governance, accountability, and the balance of power within Nepal’s federal system. Hydropower expansion, in this context, has become both an economic opportunity and a constitutional test.

In January 2025, Nepal approved the “Energy Development Roadmap and Action Plan-2081” according to which Nepal has set a target of generating 28, 500 MW of electricity by 2035. The Government also set a target to export 15, 000 Megawatts (MW) of electricity out of this targeted 28, 500 MW. In this context Nepal’s electricity sector is experiencing a structural transformation and boost in recent times. The India-Nepal power trade deal, signed on 4 January 2024, which allowed Nepal to export 10,000 MW electricity to India in the upcoming decade, and the India-Nepal-Bangladesh trilateral agreement on October 2024 through which Nepal is exporting 40 MW of electricity to Bangladesh via Indian territory, has marked a decisive shift in Nepal's export oriented energy diplomacy.

Infra Development and Structural Reforms

Nepal’s export drive is further accompanied by some major infrastructure developments from India and international financial institutions. In October 2025 India and Nepal signed two agreements for the development of high capacity 400 Kilowatt cross border transmission lines from Inaruwa (Nepal) to New Purnea (Bihar, India) and from Lakmi (Nepal) to Bareilly (India). Further, in February 2026 international Institutions such as Asian Development Bank (ADB), World Bank, SFD, AIIB, EIB, OFID have also deepened involvement and announced a financial support to develop a US$2.32 billion Dudhkoshi Storage Hydroelectricity Project which will have a capacity of 670 MW. Nepal’s reoriented strategy of energy diplomacy has already produced measurable results for it, as India approved an additional purchase of 200 MW of electricity from Nepal in August 2025. Nepal earned US$9.43 million by exporting electricity to Bangladesh in the year 2025 and aimed to reduce its trade deficit with Bangladesh .

Apart from this Nepal is also undergoing structural reforms that indicate central level consolidation. In January 2026, Nepal’s Electricity Regulatory Commission issued a directive in accordance with Section 14 of the Electricity Regulatory Commission Act, 2074 BS, whereby electricity producers, traders and big consumers can now buy and sell electricity using the Nepal Electricity Authority’s transmission lines for which they have to pay a fee to the Authority. On the surface, this appears to decentralize electricity trading. However, because transmission infrastructure and export agreements remain centrally negotiated, the reform consolidates federal regulatory control over market access and pricing structure.

These developments show that Nepal’s export growth is accompanied by institutional centralization in negotiation, infrastructure planning and market regulation. Therefore, the logic is clear, for Nepal this export growth and structural reforms promises foreign exchange, reduced trade deficits and greater regional influence. But at the same time centralized export strategy heightens tensions as it violates the mandate of equitable sharing of profits between the centre and the provinces provided by Nepal’s 2015 Constitution.

Intensification of Local Resistance

As exports climb, local resistance has also intensified against the centralization of profits. In November 2025, construction of the 50 MW Marsyangdi Besi Hydropower Project in Lamjung district was halted after sustained protests by the locals over the argument that the project would harm human civilisation and eliminate water sources across the region. Similar protests were also seen in the Bahrabise locality of Sindhupalchok district in June 2025, where protestors claimed that the proposed 46 MW Bhote Koshi-5 hydropower project could disrupt the ecological balance and erase the identity of Bahrabise town.

In December 2025, residents of Kepilasgadhi Rural Municipality of Khotang district shut down the upper Rawa Khola 3 MW plant, alleging that the developers failed to pay the committed compensation. Another such protest was seen in the Bhotekoshi Rural Municipality of Sindhupalchok district where a local Gen-Z group launched a protest in mid-September of 2025 and halted the operations of the 45 MW Upper Bhotekoshi hydropower project and demanded allocation of free shares to the locals affected by the project. This demand for “free shares” shows that communities are no longer satisfied with token compensation; rather they seek equal participation in projects built on their land.

Some indigenous leaders of Nepal such as Dhenduk Dhoma Bhote have also filed writ petitions against hydropower projects on the ground that these projects threaten ecological and cultural landscapes. This judicialization of protest indicates that resistance is moving beyond street mobilisation into constitutional litigation.

Institutional Turbulence and Revenue Sharing

Apart from protests from the local residents, institutional turbulence has also further compounded the tensions. In March 2025, the removal of Kul Man Ghising from the post of managing director of the Nepal Electricity Authority after being accused of signing an unauthorized energy trade deal with India triggered public debate and showed how politicized energy governance has become in Nepal.

Nepal’s Energy Development Roadmap signals bold ambitions and export agreements with India and Bangladesh, and international organizations say Nepal is serious about becoming a regional energy powerhouse. From a macroeconomic perspective, for a landlocked country like Nepal, electricity has become its most viable strategic asset to improve trade imbalance, maintain foreign reserves and undertake infrastructure modernization. However, the backlash from provinces and local communities demonstrates that economic expansion alone cannot secure legitimacy and halting of hydropower projects by protestors and politics around electricity signals a structural imbalance. 

This leaves Nepal at a critical juncture where it must decide between hydropower expansion through centralized authority and a transparent revenue sharing mechanism. Thus, Nepal’s hydropower and energy roadmap future will not be decided solely by dams and transmission lines but also by distribution of equitable profit and political sharing. 

(The writer is a PhD Research Scholar at Jamia Hamdard University, New Delhi. Views expressed are personal. He can be reached at Yadavsachin0406@gmail.com )