Electricity policies and market dynamics in Nepal: Implications for renewable integration and regional trade

This paper reviews the electricity policies and market structures in Nepal and India, analyzing their impacts on electricity generation, pricing, and the addition of renewable energy capacity. The analysis highlights significant differences in market maturity. Nepal’s hydropower-dominated, state-controlled market has been outpaced by India’s competitive, integrated market system in terms of transparency, diversification, and investment. A comparative policy diagnostic framework is used to evaluate the success of major legislation, based on interviews with electricity-sector experts. It explores the seasonal dynamics of trade with India, emphasizing Nepal’s transition from a net electricity importer to a net exporter in 2025, and examines trade volumes, pricing differences, and tariff trends. The economic and strategic benefits of extending regional electricity cooperation are discussed, with a focus on the status and potential of cross-border electricity trading. In addition, the paper investigated the role of renewable energy integration, carbon pricing, and the development of domestic and regional carbon markets in shaping energy strategies. Challenges such as policy inefficiencies, infrastructure gaps, seasonal generation volatility, and climate-induced risks to hydropower are discussed alongside potential solutions to improve market efficiency and meet renewable energy goals. The findings support coordinated regional energy planning, regulatory reform, grid modernization, and the introduction of carbon pricing as prerequisites for unlocking Nepal’s renewable energy potential and advancing energy security across South Asia.