Nepal is one of the least developed countries in the world with one of the lowest per capita energy consumption figures. But, argues Raghu Bir Bista, this makes the country a stronger candidate for the widespread adoption of CHP – with the emphasis on biomass.

Energy, economic development and economic growth are complementary to each other. Higher per capita energy consumption, production and utilization for value addition to the economy are indicators of both economic development and the infrastructure associated with higher economic growth. For example, the energy consumption of developed countries such as the US, UK and France is 10-20 times more than in developing countries such as Nepal, Bangladesh and African countries. Thus, energy is universally accepted as having a key role in economic development.

Cogeneration can help the rural Nepalese achieve energy efficiency (SXC Photo Library)
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Energy’s role in the development of the Nepalese mixed economic paradigm was first perceived significantly in the 1970s and 1980s, though the growth of hydro electricity was begun previously between 1940 and 1950 by the Rana regime. There was a growing trend in the 1970s/1980s to make energy simultaneously a policy priority and the focus of resource allocation.

The state has played an active role in energy development in terms of hydro electricity and alternative energies (solar, biomass, etc.) for rural electrification and economic activities such as industry, service industry and agriculture. However, the anticipated success of hydro electricity has not been observed because of a lack of political stability, willingness, commitment and vision. Statistics therefore indicate a huge gap between energy demand and energy supply in Nepal, leading to a lower per capita energy consumption of about 15 GJ and a high dependency on traditional subsistence energy sources.

Thus, Nepal is seen as synonymous with orthodox energy economy, where energy a basic utility for a higher living standard and a determinant factor in economic development, while being one of the five least energy-consuming countries in the world. Development economists view energy as a development bottleneck and as an indicator of the development difference between developed countries (e.g. US, EU Member States) and developing countries (e.g. Nepal).

Nepal’s lower per capita energy consumption and orthodox energy dominance are associated with a number of demographic distribution and macro-economic indicators. The 1991 Census found that 80% of the Nepalese population live in rural areas. Economically, about 76.5% of the population depends on subsistence agriculture for employment, income generation, food, biomass energy and wealth. The consequence is that more than 50% of the population live below the absolute poverty line, the country has less than 3% economic growth and a gross national product (GNP) per capita of less than US$300. Thus, the United Nations ( and the World Bank categorize Nepal as a least developed country (LDC).

There are a number of key issues when considering how to reduce the energy supply lag (gap between energy demand and supply) in Nepal and thus increase its per capita energy consumption and transform its traditional subsistence energy economy. Reports suggest that the supply lag is due to under production and utilization of resources, even though the constraints of technology, capital, infrastructure and skilled manpower are being addressed by the national development plan and the focus on energy development in Nepal. However, Nepal is over-dependent on imported petroleum products.

Economic and technical exploitation of the huge potential of hydro power by public-private partnerships would allow cheap, reliable and surplus hydro electricity to be made available to meet household and industrial demands, and also for export. In addition, cogeneration (biomass and fossil fuel) to enable energy decentralization and sufficiency should be a policy focus as part of energy liberalization, localization and individualization to meet household and industrial demands for electricity. Nepal may then be prosperous in the future.


Nepal has two kinds of energy sources – traditional and commercial energy sources (see Figures). Traditional energy sources are based on biomass resources such as:

  • fuel wood
  • agricultural residues
  • cow dung.

Commercial energy sources include:

  • petroleum (fossil fuel)
  • hydro electricity
  • coal.

Hydro electricity, biomass and thermal power plants based on fossil fuel are seen as crucial for energy and economic development in Nepal.

Hydro electricity

Commercial energy was in the 1940s with the establishment of Chovar Hydropower Plant for lighting and mechanical work. However, the development of hydro power has been slow (but steady) because of various major constraints (e.g. lack of capital and technological skills, inappropriate policy and political issues). Therefore, the growth in demand for hydro electricity exceeded the growth in the production and distribution of electricity.

There is a huge potential for hydro power in Nepal. An economic survey by the Ministry of Finance in 2006 reported a total hydro electricity generation of 600 MW (i.e. only 0.5% of its total potential) covering only 18% of urban areas. In terms of consumption, the household and industrial sectors are the major consumers of hydro electricity at 35.6% and 38.8% respectively. The commercial sector and export of electricity provide small but significant contributions of 6-8%.

The national electricity market in Nepal is huge and wide, but has not been targeted for proper exploitation because of the lag in electricity supply compared with potential demand, and the backward nature of the country’s commercial sector.


Since ancient times, biomass energy sources have played a major role in meeting the demands of subsistence living (heating, lighting, cooking and warming) in Nepal. They have also been used to fulfil industrial and commercial demands.

A survey published by the Nepal Electricity Authority (NEA) in 2007 reported that the household sector used 95% of biomass energy sources while the industrial and commercial sectors used only 5%. In terms of household consumption, fuel wood contributed most (69%) while agricultural residues and cow dung together contributed 31%.

The extensive use of biomass in Nepal for household energy is a special rural feature vital in meeting livelihood demands. However, advances in modern biomass energy technology mean that it has potential for significant commercial use. But such a transformation seems difficult in the present policy vacuum. The result is lower energy per capita, lower GNP per capita and massive poverty in Nepal.

Thermal power plants

During the Panchyat regime (1960-1990), national planning and policy recognized thermal power as the second source of commercial energy and six diesel thermal power plants were built to supplement hydro electricity. The total capacity of these plants is 56.7 MW though they are used for only around half the year.

With the shortage of energy from hydro electricity, there is a higher demand for thermal power as a supplementary alternative source. According to the NEA survey, diesel thermal power has the lowest share of the household energy market (Nepal does not have central heating systems). This is because the cost of generating electricity from diesel is 26 rupees per unit, compared to 6 rupees per unit by hydroelectricity. The use of diesel thermal power is a critical issue because it increases the tariff burden on the consumer and the dependency on costlier fossil fuel. The negative consequence of this can be seen in Nepal’s macro-economic instability.


Use of cogeneration energy: biomass

The pattern of energy use in Nepal is dominated by the use of traditional energy sources (biomass) for household consumption. In 2005, energy use was estimated to be 87.7% from biomass energy sources and 12.3% from commercial energy sources (Figure 1).

Figure 1. Relative use of traditional and commercial energy sources in Nepal, 1995-2005 (Source: Economic Survey, Finance Ministry/Nepal Government 2005)
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Analysis of the survey results found sluggish availability and supply of commercial energy sources all over Nepal and a policy vacuum on combined heat and power (CHP) alternatives that could use biomass resources for electricity, heating and hot water. At a household level, the main reasons for the dependence on biomass energy are persistent rural poverty and the rigid social structure.

Fuel wood makes up 89.1% of the total biomass energy (7.72 million tons of oil equivalent (TOE)) and the rest (agricultural residues and cow dung) only 10.9% (Figure 2). The dependency on fuel wood energy for heating and warming is not economically and ecologically productive. For example, the high rate of deforestation has led to natural calamities (floods and landslides) resulting in the destruction of life, land, property and houses. This destruction is said to have made the rural economy and life poorer than before and has complicated the poverty issue in Nepal. Excessive use of fuelwood can be said to be unsustainable energy consumption.

Figure 2. Traditional energy sources, 2005 (Source: Economic Survey, Finance Ministry/Nepal Government 2005)
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The use of cow dung and agricultural residues is considered acceptable for heating, though it does cause indoor pollution.

Use of commercial energy sources and thermal plants

Fossil fuel (petroleum) makes up 67% of total commercial energy sources (1.13 million TOE), followed by electricity (15%), coal (14%) coal and other (4%) (Figure 3). The dominance of fossil fuel leads to a dependency on imports, which in turn, accelerates the growth of Nepal’s trade deficit.

Figure 3. Commercial energy sources, 2005 (Source: Economic Survey, Finance Ministry/Nepal Government 2005)
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The main imported fossil fuels used in Nepal are liquefied petroleum gas (LPG), gas, petrol, diesel, kerosene and aviation fuel. They and coal are used for urban household, industrial consumption, transport and infrastructure development. Nepal’s thermal power plants are less cost-effective and are inefficient in terms of electricity generation and, therefore, should not be the preferred policy.

Sources of electricity in Nepal are hydro power plants, diesel-burning thermal plants and alternative energy sources (solar, small and micro hydro). The share of hydro electricity produced by the government, electricity purchased from the private sector, thermal plants and electricity imported from India account for 57.63%, 32.73%, 0.51% and 10% respectively. Household and industrial sectors use the same proportion of electricity (38%). However, hydroelectricity is not sufficient to substitute for fossil fuel for saving foreign currency and replacing fuel wood energy to conserve forest resources.


In order to address threats to Nepal’s development, such as massive poverty, unemployment and subsistence economy, the national development plan gives priority to:

  • increasing energy consumption per capita
  • higher economic value addition through the development of hydro power and alternative energy sources.

Energy policy in Nepal gives special attention to the development of hydro power and alternative energy sources in order to reduce the country’s dependence on costlier petroleum energy and to substitute these sources for the biomass energy sources used for subsistence living. This will address the critical scenarios of macro-economic instability and subsistence living, leading to higher economic growth and energy sufficiency.

The policy is a comprehensive and clear document based on privatization, liberalization and globalization philosophy for foreign and private investment for large-scale hydro, and with a focus on rural electrification through small and micro hydro and alternative energy sources. Thus, the policy has encouraged the private sector development of micro and small hydro power plants (<5 MW) for rural electrification. Competitive energy market development and the development of medium and large hydro power plants (>5 MW) is kept for foreign direct investment (FDI) or public investment to exploit the potential of the country’s water resources for energy generation.

Studies recommend micro and small hydro projects in Nepal on the grounds of lower cost, availability of local technology and resources, and being environmentally sustainable. But in practice, growth has been slow and the cost-effectiveness of hydro has been questioned. Thus, the emphasis on the development of hydro power as the foundation of Nepalese economic development is beginning to be criticized.

Despite the potential for CHP in Nepal, little thought has yet been given to its application to tackle the huge growth in the gap between energy demand and energy supply. The potential for cogeneration to meet energy demand is huge given the existing dominance of biomass energy sources and the huge need for electricity. There is commercial value and potential if biomass CHP cogeneration plants were installed in the industrial and commercial sectors. But, as yet, there is an absence of policy provisions. A progressive option for the future would be cogeneration for industrial energy, heating and hot water.

Policy should focus on alternatives sources that could provide cheap and sufficient electricity to meet demand based on local technology and resources. In this regard, policy-makers should consider CHP as an effective and efficient use of biomass energy resources for electricity, heating and hot water for decentralized energy and private sector participation. This would help to address Nepal’s huge energy gap.


Surveys and studies by the Nepalese government, coupled with lobbying and advocacy of a balanced development approach on energy, highlight the following two types of energy potential:

  • water-based hydro power
  • alternative energy sources.

CHP has yet to be recognized as a vital source of electricity, heating and hot water despite its lower cost and the possibility of effective utilization of biomass resources. This is because of the poor performance of industrial developments and a lack of policy attention to it in Nepal.

Energy economists and planners do not like over-dependence on hydro electricity because of its socio-economic and political constraints. Thus, the development of alternative energy sources is emphasized as well as hydro power. However, the 6000 major and minor rivers scattered throughout Nepal offer huge potential water resources for hydro power generation. The total length of these rivers is 45,000 km and their coverage is 0.3 km/km2. The estimated 83,000 MW of hydro electricity potential (Table 1) puts Nepal in second place in terms of water resources in the world, only after Brazil.

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There are key issues of energy economy in Nepal such as:

  • the lag between energy supply and demand
  • the dominance of biomass resources in its energy structure
  • lower energy value addition
  • thermal and hydro power generation that is not cost-effective and the repercussions of this on the national economy.

The national energy policy fails to address these issues. Policy should be formulated on the basis of international practices and experience, taking account of Nepal’s energy resources, structures and the socio-economic level of its people to explore:

  • alternatives to reduce the lag between energy supply and demand
  • increasing energy value addition and effectiveness
  • cost-effective hydro electricity
  • reducing the country’s dependency on imported petroleum energy for the operation of thermal power plants, household cooking and heating, and industrial demand for heating and transportation.

In this context, biomass resources may be appropriate sources of electricity, heating and hot water if they are effectively and efficiently used through the introduction of CHP technology. At present, utilization of biomass resources is traditional, highly ineffective and inefficient, and merely for cooking and heating.

A transformation to achieve efficient production and use of energy is necessary to obtain higher energy consumption per capita, higher value addition and energy efficiency. This would also help to decentralize energy on the basis of local biomass resources and local investment. In addition, it will help to maintain the global environment and climate by controlling methane gases and enhancing the prospects of achieving carbon dioxide reduction targets. Thus, Nepal could become energy sufficient.

Energy policy in Nepal should emphasise the development of CHP. It should also take measures to transform the country’s traditional energy structure, with the substitute fossil fuel along with the development of hydro power, in order to achieve overall economic development, as well as global environmental protection.

Raghu Bir Bista is an Assistant Professor at Tribhuvan University, Nepal.