Nepal flood exposes vulnerabilities in hydropower-driven energy system

Nepal's rapid expansion of hydropower has transformed its electricity sector, taking the country from power cuts of up to 16 hours a day in 2010 to near-total domestic electrification and annual revenues of nearly $200 million from electricity exports to India and Bangladesh.

The country now has 225 hydropower plants with more than 3,900 megawatts (MW) of installed capacity, while hundreds of other projects are under development, says the BBC.

But a catastrophic flash flood has exposed the vulnerabilities of a power system heavily dependent on plants built in the high-altitude Himalayan region.

The floods, preliminarily linked to the collapse of a high-altitude glacier and its underlying bedrock, killed more than 1,300 people and left thousands missing. They also severely damaged 12 hydropower plants in the Trishuli River basin, wiping out more than 10% of Nepal's total electricity generation capacity.

Climate risks challenge hydropower expansion

Most of Nepal's hydropower plants are built in mountainous areas to take advantage of fast-flowing rivers without relying on large water-storage systems. But the location also leaves infrastructure exposed to landslides, glacial events and flash floods.

The Himalayas are warming at roughly twice the global average, increasing the environmental risks facing infrastructure in the region. More than 90% of Nepal's recorded disasters between 2018 and 2024 were climate-related, according to the information provided.

The latest disaster has prompted officials and energy experts to reconsider whether Nepal should continue to rely so heavily on run-of-river hydropower.

One option under discussion is greater investment in reservoir-based plants at lower altitudes. Such facilities can store water and release it when needed, potentially providing greater control over electricity generation and reducing some of the risks associated with high-altitude projects.

But reservoir projects also carry significant environmental and economic costs, including the need for large areas of land and potentially greater disruption to ecosystems and communities.

Calls for a more diversified energy mix

The disaster has also renewed calls for Nepal to diversify its electricity generation beyond hydropower.

Experts say the country should stop putting "all its eggs in one basket" and develop more solar and wind power alongside hydropower.

A report by a German aid agency estimates that Nepal's technical potential for solar energy is roughly 10 times greater than its hydropower potential.

However, analysts caution that diversification has limits. Hydropower remains central to Nepal's competitive advantage in South Asia, particularly because of its large river systems and its potential to export electricity to neighbouring countries.

The challenge for policymakers is therefore how to reduce the risks associated with hydropower without undermining an industry that has become a key source of economic growth and export earnings.

Foreign investment faces growing risks

The floods have also raised questions about the risks facing foreign-backed hydropower projects.

Among the projects damaged was the $647 million Upper Trishuli-1 plant, which is backed by the Asian Development Bank and the International Finance Corporation.

Critics say international lenders went ahead with financing despite historical evidence showing the Trishuli basin was vulnerable to extreme weather and geological events.

Private hydropower operators are also facing rising insurance premiums as insurers reassess the risks associated with projects in the Himalayas. Higher insurance costs could affect the commercial viability of future developments and raise financing costs across the sector.

For Nepal, the issue extends beyond energy policy. The country is a relatively small greenhouse gas emitter but is increasingly exposed to climate-related risks affecting its infrastructure.

Nepali representatives argue that the country should not be expected to bear the costs of climate-driven risks alone, particularly when those risks are linked to broader changes in the Himalayan environment and extend beyond national borders.