Overview

Nepal’s large hydropower potential represents an enormous opportunity for U.S. companies, including in foreign direct investment and/or joint ventures, as well as in the sale of equipment and provision of consultancy services. Nepal has approximately 83,000 MW of technical hydroelectric potential, of which more than 40,000 MW is commercially viable. As of 2025, Nepal has an installed electricity generating capacity of 3,435 MW, with 4,063 MW under construction and 16,029 MW awaiting construction. Hydropower developers are also exploring additional projects with a combined capacity of 4,000 MW. 

Nepal and India have close energy ties. The two countries signed has a Power Trade Agreement with India in 2014 and began trading electricity in October 2021. Currently, Nepal can export up to 1,000 MW to India’s neighboring states during the monsoon season (June–September) and imports energy from India during the dry months (October–May) India allows cross-border electricity trade with Nepal, except for those projects involving Chinese investment, equipment, or contractors. 

This has prompted Nepal to shift major hydropower contracts to Indian companies. In January 2024, Nepal and India signed a second power trade agreement for Nepal to export 10,000 megawatts (MW) of hydroelectricity to India over the next 10 years. To support these exports to India, Nepal needs upgraded transmission lines, including a proposed line funded by the Millennium Challenge Corporation to strengthen cross-border connectivity. 

The Power Trade Agreement has opened India’s large and growing electricity market to Nepal’s independent power producers. In July 2023, Bangladesh, India, and Nepal signed the first long-term agreement for wheeling Nepali-generated power through India to Bangladesh. Nepal began exporting electricity to Bangladesh in June 2025, marking a historic milestone. Both India and Bangladesh are investing in Nepal’s hydropower projects with the goal of exporting power to their respective countries. 

Nepal’s electricity sector is managed by the state-owned Nepal Electricity Authority (NEA), which operates most transmission and distribution infrastructure and manages the national power system. While NEA historically developed much of Nepal’s power infrastructure, private hydropower companies now generate more electricity than NEA’s own plants. NEA remains the sole authorized electricity trader and primary off-taker, purchasing power from private producers through Power Purchase Agreements (PPAs).

Private developers are seeking the ability to obtain power trading licenses and open access to NEA’s transmission and distribution networks to sell electricity directly to customers. As of March 2026, private firms still lack trading rights, which would require amendments to Nepal’s Electricity Act. However, the Electricity Regulatory Commission introduced open-access regulations in January 2026 that would allow licensed traders to use the grid without a PPA with NEA.

For U.S. exporters, NEA remains the primary customer for transmission, distribution, and grid-related equipment and services, while private hydropower developers represent a growing market for generation technologies and technical expertise. The Independent Power Producers’ Association, Nepal (IPPAN) is a key industry contact. Tender opportunities are typically posted on Nepal’s e-procurement portal (www.bolpatra.gov.np), the NEA website, and procurement portals of the Asian Development Bank and World Bank.

Nepal has demonstrated that, when committed, it can enact meaningful reforms and attract substantial foreign investment in hydropower, as illustrated by:

• Foreign investment from multiple countries – India, China, South Korea, Bhutan, and others are investing in Nepal’s hydropower projects, often targeting electricity exports and regional trade. A World Bank report states that Nepal’s public sector has averaged $93 million in annual investments since 2015, while the private sector has contributed approximately $200 million per year during the same period. The report highlights that nearly half of Nepal’s hydropower foreign direct investment (FDI) comes from India, with China accounting for about one-third. Major export-focused hydropower projects, such as Arun 3 and Upper Karnali, have been funded by Indian state-owned enterprises and commercial banks.
• Support from international development partners – Countries such as the United States, South Korea, Japan, and Germany, as well as institutions like the World Bank and EU agencies, provide grants, concessional loans, and technical assistance to Nepal’s hydropower and energy sector. The United States’ $550 million MCC compact will upgrade Nepal’s transmission system and create a new cross-border connection with India to expand regional electricity trading.
• Establishment of the Electricity Regulatory Commission (ERC) – After 20 years of effort, Nepal established the ERC, which issued its first consumer tariff order, advancing independent sector regulation.
• Public-Private Partnership Act – Promotes foreign investment in infrastructure projects facilitated by the Investment Board of Nepal.
• Drafting of key energy legislation – Includes the Electricity Act and an Energy Efficiency Policy to strengthen Nepal’s energy framework.
   

Table: Water Resources Equipment and Services (U.S. $ thousands)

Note: Total market size is a best estimate, derived by subtracting exports from imports, given local production figures are unknown.
Total Imports: UN Comtrade Database
Imports from U.S.:  UN Comtrade Database 

Hydropower companies in Nepal are increasingly seeking advanced and efficient technologies for hydromechanical and electromechanical systems, as well as transmission infrastructure. Key areas of demand include civil works such as headrace tunnels or canals and penstocks; mechanical equipment including turbines, generators, and other hydraulic machinery; and electrical equipment such as generators, excitation systems, and auxiliary power systems. Companies are also interested in advanced capabilities such as modeling, simulation, and digital engineering solutions to improve hydropower design, efficiency, and operations.

Leading Sub-sectors

• FDI for hydropower power projects
• Consulting services
• Turbines
• Generators
• Power control machinery
• Surveying instruments
• Transmission lines
• Heavy machinery and earth moving equipment

Opportunities

The Government of Nepal would like to produce 28,500 megawatts of electricity by 2035, with nearly half for export to India and third countries and the remainder for domestic consumption. Nepal needs FDI not only for energy generation but also to modernize its transmission and distribution systems. U.S. companies could find opportunities across all three sectors: generation, transmission, and distribution. The government is also exploring energy storage technologies, including a planned 600 MWh battery capacity in industrial cities to help balance the grid. Smart grid technologies present additional opportunities to enhance grid stability and efficiently integrate battery systems with renewable energy generation.

Resources

• Ministry of Energy, Water Resources and Irrigation 
• Independent Power Producers’ Association of Nepal 
• Alternative Energy Promotion Center