Nepal’s energy sector faces a critical disconnect between national ambitions and the institutional capacity required to achieve them. This issue goes beyond partisan politics, exposing structural weaknesses in state-building and development governance. The situation calls for serious scrutiny of Nepal’s geopolitical limitations and the lack of transformative energy and economic strategies. In contrast, countries such as Ethiopia, Kenya, Uganda, Rwanda, Thailand, and Vietnam have made significant progress through diversification, infrastructure investment, and governance reforms. Despite bold claims of success from political actors, Nepal continues to struggle with systemic fragility.
Concrete evidence reveals the depth of Nepal's stagnation: an alarming 29% dependence on remittances for GDP, a crippling brain drain evidenced by over 760,000 foreign employment approvals in 11 months, a massive NRs 25.1 trillion public debt burden, and severe fiscal mismanagement causing critical public goods and services collapse across social, environmental, and economic infrastructures. The root cause is identified as profound governance failure, where the political establishment prioritizes power consolidation over addressing national crises. This system is characterized by policy distortion, regulatory capture, and pervasive corrupt activities disguised as reform while suppressing critical leadership as dissent and rewarding loyalty. Decades of this political-survival governance model have rendered Nepal a fragile state.
Despite this bleak reality, Nepal possesses extraordinary potential through its demographics, vast water resources, arable land, forests, tourism assets, cultural heritage, and unique geography. Realizing this potential necessitates urgent radical actions starting with dismantling rent-seeking/corrupt political institutions and replacing dysfunctional leadership. Empowering a new generation of competent stewards is presented as critical, with delay risking the loss of fleeting opportunities in key sectors like hydropower, tourism, agriculture/forestry, education, and ICT. Republica's subsequent optimistic coverage of hydropower potential (July 20, 2025) is undercut by the stark reality of profound underutilization. Realistic targets in the Hydropower Development Guidance (2081) exemplify the ambition and capacity gap, while export viability is crippled by India's gatekeeping role, resulting in unfavorable trade terms and negligible revenue from Bangladesh and India. This focus on raw electricity exports incurs significant opportunity costs by neglecting value-added domestic utilization, conclusively demonstrating that Nepal's stagnation stems not from resource scarcity but from established governance failures.
Hydropower: A Foundation for Economic Diversification
A transformative economic pathway involves leveraging hydropower resources for derivative industrial applications. Domestic fertilizer production and the digital industry represent a strategically coherent opportunity within this framework. Energy derivatives constitute sophisticated financial instruments whose valuation is intrinsically linked to the price of an underlying energy commodity. These instruments are primarily employed by energy producers, end consumers, and investors to mitigate risks associated with energy price volatility. Crucially, rather than exporting generated electricity such as hydropower or diversified energy mixes as a primary commodity via transmission lines to neighboring nations like India or Bangladesh, this energy can be strategically deployed to stimulate other domestic economic sectors. This endogenous utilization model accelerates broad-based economic development beyond the energy sector itself.
Using electrolysis-powered green hydrogen to synthesize ammonia and urea, potentially enhanced by carbon capture from cement plants, is feasible. Studies by the Investment Board Nepal (2021) and Kathmandu University indicate viability under two scenarios: with subsidized energy tariff (NRs. 3 per kWh), production costs reach USD 436 per metric ton; with zero-cost power, costs drop to USD 308 per metric ton, yielding a 12.5% equity IRR. Redirecting Nepal’s annual fertilizer import expenditure (NRs. 27.95 billion for 550,000 metric tons) could fund this transition, eliminating input shortages and reducing food import dependency. Allocating 350 MW of dedicated supply to such facilities would yield compound benefits, enabling premium agro-exports to regional markets, advancing transportation decarbonization, and minimizing grid operation challenges.
Bhutan: Economic Diversification
Bhutan's economy relies significantly on two primary foreign currency sectors: hydropower and tourism. According to the Ministry of Finance of the Royal Government of Bhutan (2024), during fiscal years 2022/2023 and 2023/2024, hydropower exports generated approximately BTN 4.26 billion and BTN 4.35 billion, respectively. Concurrently, the tourism sector contributed BTN 23.32 billion in 2023. The COVID-19 pandemic severely impacted Bhutan's tourism-dependent revenue streams, prompting the Royal Government of Bhutan (RGoB) to reassess its economic strategy. This reassessment acknowledged tourism's inherent vulnerability as a singular revenue source and catalyzed a strategic pivot toward diversification. Building upon its established hydropower infrastructure, Bhutan initiated an innovative program in 2021: large-scale Bitcoin mining utilizing surplus clean energy and developing high-end digital/ICT infrastructure. This initiative has yielded substantial sovereign digital asset holdings. Bhutan currently possesses over 13,000 Bitcoin, constituting the world's third-largest governmental reserve. Valued at approximately USD 1.3 billion, these holdings represent nearly 40% of the nation's GDP (GDP USD 3.42 billion by WB/IFC; USD 1 = 86.05 BTN). Operational expansion is evident, with the government establishing at least six mining facilities by 2025. Significantly, Bhutan has leveraged a portion of these digital assets to fund public sector salary increases and bolster fiscal stability, demonstrating a functional integration of digital currency reserves into national fiscal management.
Potential Implications for Nepal
Given the mountainous topography and comparable hydropower potential shared by Bhutan and Nepal, Bhutan's experience offers instructive insights. Nepal could strategically explore establishing highly regulated digital currency mining facilities and data centers. Such an initiative would optimize surplus hydroelectric energy by converting it into high-value digital industry. This approach represents a potentially viable pathway for economic innovation and value creation, moving beyond theoretical applications to pragmatic, resource-based economic development.
Nepal’s climate offers a parallel digital industrialization pathway. The natural cooling capacity of high-altitude regions presents significant efficiency gains for data centers, which typically expend 40–60% of operational costs on power supply and temperature control. Strategic development of specialized ICT zones and decentralized data centers could attract blockchain operations and digital currency infrastructure. Particularly relevant as BRICS nations advance central bank digital currencies, Nepal could offer a premium location for data center operation. This approach would capture premium energy value domestically while generating mass employment across interconnected sectors like tourism, hospitality, travel, banking, food services, health, and education.
These dual strategies align with David Ricardo’s (1871) and Michael E. Porter’s (1990) theories of comparative advantage and competitiveness. Instead of exporting raw electricity at disadvantageous terms, Nepal should leverage its natural endowment for high-value digital industrial transformation and a competitive economy. The technical and economic feasibility of these models is established; their implementation now depends on overcoming bureaucratic inefficiency, political blunders, and geopolitical constraints. Nepal’s energy leadership will be defined not by generation targets, but by the strategic reimagining of hydropower as an engine of integrated economic growth and dynamics. This pivotal moment necessitates efficient and intensive action to stop irreversible consequences!
(Authors utilized data from the most recent official reports published by Nepal Rastra Bank, the Economic Survey, the Nepal Electricity Authority (NEA), the Investment Board Nepal (IBN), Kathmandu University, the Ministry of Finance of the Royal Government of Bhutan (2024), and Coin Central (Jun 17, 2025). The authors further declare no competing interests regarding the analysis and perspectives presented in this op-ed.)