Nepal aims to utilise its vast hydroelectricity network to produce some of the world's cheapest green hydrogen, according to the government’s National Green Hydrogen Policy 2080, which was launched at the start of this year.

Based on current renewable energy prices, hydrogen production costs range from €3.50–€3.75/kg in Nepal, comparable to China and slightly higher than Russia, according to estimates from professional services firm PwC. By 2030, Nepal could be among the few countries producing hydrogen at the cheapest rate of €2–2.25/kg, PwC said.

The hydrogen policy aims to transition Nepal to a low-carbon economy while exploring export opportunities, although the regulatory frameworks around this aim are still being developed. Nepal aims to have net-zero emissions by 2045.

€2–2.25/kg – Projected cost in 2030

The hydrogen policy is the culmination of R&D initiatives, including setting up of a hydrogen lab, by researchers at Katmandu University in 2020. This was followed by the Nepal Hydrogen Initiative, a project to support the government in developing related policies. Funded by the Nepal Oil Corporation, the initiative explores the technical and economic viability of green hydrogen production, including developing a pilot hydrogen vehicle and refuelling station.

Nepal has also established a hydrogen coordination committee to evaluate investment potential in the hydrogen sector.

Hydro surplus

While Nepal’s economy is heavily dependent on fossil fuels, it produces surplus hydroelectricity due to significant investments in the sector over recent years. 

Since the early 1990s, after a prolonged phase of power shortages, Nepal saw substantial investments in hydropower by private investors.

In 2022–23, Nepal produced 2,930GW of hydropower, with nearly 45% (1,346GW) exported to India.

In addition, more than 200 hydropower projects are at various stages of development with a combined capacity of more than 5,000MW, according to the Nepal Electricity Authority.

Recently, India refused to buy hydropower from projects built with Chinese investments, increasing pressure on Nepal to manage the surplus power. Further, while Nepal produces excess hydropower, transmission and distribution remain a challenge due to the mountainous terrain.

"Last year, Nepal spent nearly $3.5b on fossil fuel imports, almost one-third of our economy. Replacing this with hydrogen could make Nepal energy self-sufficient and enable exports, which would be crucial for political diplomacy,” said Biraj Singh Thapa, associate professor at the Department of Mechanical Engineering Kathmandu University.

“During the pandemic, Nepal overproduced so much electricity that the Nepal Power Corporation had to stop trading activities. This was a setback for researchers as so long most of the R&D work had focused on hydropower, inspiring us to focus on hydrogen,” he said.

Hydro versus solar

The long-term feasibility of hydrogen production from hydropower in Nepal depends on the comparative cost analysis of solar power-generated hydrogen as well as the potential to use it in an economically viable manner. At present, most of the industrial and consumer assets in Nepal are locked in fossil fuels.

"The economic viability of hydrogen production hinges on electricity tariffs. Renewable energy tariffs in Nepal must be lower than solar power, which is expected to decrease dramatically over the next few years. In comparison, the cost of hydropower will not reduce at the same rate," said Surendra Paudel, former executive director of NOC Nepal Oil Corporation.

A study by thinktank the Mercator Research Institute on Global Commons and Climate Change (MCC) in 2023 indicated that, in the past ten years, solar electricity costs have fallen by 87% and battery storage costs by 85%.

“Producing hydrogen at the cheapest rate in Nepal is feasible, but work must start now” Paudel, former Nepal Oil Corporation

Currently, hydropower costs in Nepal are slightly over NPR4 (about $0.030) per unit of production.

However, as most hydropower facilities in Nepal are based on build, own, operate, and transfer agreements, over the course of the next 30 years many assets would be handed back to the government, leading to a substantial reduction in the cost of hydroelectricity.

"The handover to the government means zero investment cost, reducing renewable energy costs significantly. Producing hydrogen at the cheapest rate in Nepal is feasible, but work must start now," Paudel added.

Hydrogen hub

As part of the Nepal Hydrogen Initiative, researchers at Kathmandu University propose creating a hydrogen hub in Nepal that would focus on production, storage, distribution, and utilisation infrastructure. The hub could support industries such as steel, fertilisers and cement, said Thapa, who is also a part of the initiative.

Nepal has seen an acute shortage of fertilisers in the last few years as imports dwindled after the war in Ukraine. Therefore, the production of ammonia and urea could be one of the key uses of hydrogen in Nepal, added Thapa.

The Koshi River basin, with a potential capacity of 5.5–6GW, has been proposed for this hub. Under the proposals, about 2GW would be used for green hydrogen production.

Researchers are also advocating for a Hydrogen Development Board to centralise all regulatory activities related to hydrogen.

Recently, Kathmandu University successfully tested a hydrogen-powered car. However, to make hydrogen commercially viable in the transport sector there is a need for policy, including vehicle registration plans, refuelling station licensing and other regulatory frameworks, said Thapa.

"Several investors have expressed interest in setting up hydrogen plants in Nepal,” Thapa noted.

In 2020, GreenZo, a Delhi-based renewables project consultant, partnered with Nepal’s API Power to develop 50MW of green hydrogen production facilities in Nepal.

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Author: Namrata Acharya