Bhutan's National Energy Policy 2025 (NEP 2025), released in June 2025 by the Ministry of Energy and Natural Resources (MoENR), represents a pivotal shift in the country's energy strategy. Titled "Empowering Energy Security & Sustainable Growth," the policy consolidates and supersedes several prior frameworks, including the Bhutan Sustainable Hydropower Development Policy 2021, Alternative Renewable Energy Policy 2013, Domestic Electricity Tariff Policy 2016, and National Energy Efficiency & Conservation Policy 2019. This consolidation comes amid institutional reforms under the Electricity Act of Bhutan 2001 and aims to address emerging challenges like climate change impacts on hydropower, rising domestic demand, and the need for energy diversification.

Drawing from royal addresses by His Majesty Jigme Khesar Namgyel Wangchuck, the policy emphasizes hydropower as a "precious resource" while advocating for expansion into solar, wind, biomass, geothermal, and emerging technologies like green hydrogen. With Bhutan's techno-economically viable hydropower potential at 23,000 MW (from 90 sites outside ecological parks), solar at 12,000 MW, wind at 800 MW, and biomass at 2,700 GWh annually, the NEP 2025 sets ambitious targets: 25,000 MW total generation capacity by 2040, including 15,000 MW hydropower and 5,000 MW solar. This review examines the policy's structure, strengths, potential shortcomings, and broader implications.

Key Provisions and Structure

The NEP 2025 is structured into 18 sections, providing a holistic framework across the energy value chain—from resource development to efficiency and market integration.

Objectives and Scope: The policy prioritizes energy security, reliable and competitive supply, investment attraction, regional market development, climate resilience, efficiency, and institutional strengthening. It extends to the entire Kingdom and supersedes conflicting provisions, ensuring continuity for ongoing projects under prior arrangements.

Institutional Arrangements: Clear roles are delineated. The MoENR oversees policy formulation and clearances. The Department of Energy (DoE) handles planning, approvals, monitoring, and innovation pilots. The Electricity Regulatory Authority (ERA) manages licensing, tariffs, and standards. Utilities like Druk Green Power Corporation Ltd. (DGPC) for generation and Bhutan Power Corporation Ltd. (BPC) for transmission/distribution are empowered, with provisions for reforms to enhance competition. The Bhutan Power System Operator (BPSO) ensures efficient operations, and the National Centre for Hydrology and Meteorology (NCHM) provides data support.

Energy Resources Development: Hydropower remains central, categorized by size (mega >1,000 MW, large 500-1,000 MW, medium 100-500 MW, small <100 MW). The Royal Government of Bhutan (RGoB) retains majority ownership (at least 51%), capping foreign/domestic private investment at 49% via public-private partnerships (PPPs). Small projects are reserved for domestic investors. Multi-purpose reservoirs and pumped storage with solar hybrids are prioritized for firm power. Solar and other renewables (wind, geothermal, biomass) are promoted via PPPs, Independent Power Producers (IPPs), and captives, with Foreign Direct Investment (FDI) allowed. Concession Agreements (CAs) span 30 years for hydropower and 25 for solar, extendable by 5 years. Emerging areas like green hydrogen (via the Hydrogen Roadmap 2024), small modular reactors, and waste-to-energy are encouraged, with fossil fuel captives permitted only in crises.

Transmission, Allocation, and Financing: Transmission aligns with the National Transmission Grid Master Plan (NTGMP) and Renewable Energy Development Roadmap (REDR). Open grid access, ancillary services, and technologies like AI and smart meters are mandated. Power allocation prioritizes essentials (e.g., hospitals, households) over industries. Financing emphasizes diverse sources: government budgets, multilateral banks, green bonds, FDI, and blended loans. Fiscal incentives follow the Fiscal Incentives Act, with reinvestments from hydropower earnings.

Environmental, Social, and Market Aspects: Projects require Environmental and Social Impact Assessments (ESIAs), minimum water releases, and local engagement (e.g., prioritizing Bhutanese labor and knowledge transfer). Land acquisition follows the Land Act 2007. The policy fosters a domestic power market, regional integration, and carbon trading. Tariffs are cost-reflective, with dynamic mechanisms like Time-of-Use (ToU) pricing and subsidies for affordability. Energy efficiency includes demand-side management, audits, standards, and e-mobility promotion.

Implementation and Definitions: The DoE leads execution, with periodic reviews. Definitions clarify terms like "firm power," "prosumer," and "captive generation."

Strengths and Innovations

The NEP 2025 stands out for its forward-thinking approach, aligning with Bhutan's carbon-neutral commitment and Gross National Happiness philosophy. Key strengths include:

Diversification and Resilience: By targeting a balanced energy mix, the policy mitigates hydropower's vulnerability to climate-induced hydrological risks (e.g., erratic inflows leading to 2022 imports). Integrating solar hybrids and storage addresses the 125% peak load excess over firm capacity in 2024, enhancing reliability.

Investment and Private Sector Focus: Capping private ownership at 49% protects national interests while attracting FDI through competitive incentives and transparent mechanisms (e.g., solar site inventories, SOPs for proposals). Blended financing and green bonds could unlock capital for the 1,081 MW hydropower and 123 MW solar under construction.

Sustainability and Inclusivity: Mandates for ESIAs, local empowerment, and carbon market access support climate goals, including NDCs and GHG reductions via e-mobility and biofuels. Promoting prosumers and Distributed Energy Resources (DERS) empowers remote communities.

Market-Oriented Reforms: Establishing a domestic trading platform and regional interconnections (e.g., via Renewable Energy Certificates) positions Bhutan as a green energy exporter, potentially boosting revenues beyond the current 38% electricity share in total energy supply (793 KTOE in 2022).

Innovations like hydrogen value chains and AI in grids reflect global trends, making the policy adaptable to technologies like battery storage and modular reactors.

Potential Shortcomings and Challenges

While ambitious, the policy has areas for refinement:

Implementation Gaps: Reliance on DoE for multiple roles (e.g., approvals, monitoring, pilots) could strain resources. The policy mentions institutional reforms but lacks specifics on timelines or metrics for success.

Economic Risks: Targets like 25,000 MW by 2040 are aggressive, given historical delays (no major additions in two decades). Financing diversity is positive, but dependence on external sources exposes projects to global market volatility. Tariff provisions (e.g., RoE based on replacement costs post-economic life) may deter investors if not benchmarked competitively.

Equity and Affordability: While subsidies are noted, the policy's import cost allocation (prioritizing industries for burdens) could disproportionately affect households during deficits. Environmental safeguards are robust, but enforcement in vulnerable Himalayan ecosystems remains challenging.

Data and Metrics: Estimates (e.g., energy potentials) draw from outdated plans like PSMP 2040 and REMP 2017, which need periodic updates as mandated. The policy's focus on hydropower (despite diversification) might overlook biomass's 2,700 GWh potential if not integrated effectively.

Comparatively, the NEP 2025 improves on predecessors by consolidating fragmented policies, but it could draw more from international models like India's renewable incentives or Norway's hydropower funds for greater private sector incentives.

Implications for Bhutan and the Region

For Bhutan, the policy could drive socio-economic growth, with hydropower revenues (illuminating homes and industries) extended to green exports. Achieving targets would reduce import reliance, support the "High-Income GNH Economy," and enhance resilience against climate threats. Regionally, expanded trade via bilateral/multilateral frameworks could aid South Asia's clean energy transition, positioning Bhutan as a hydropower hub amid India's rising demand. However, success hinges on execution: capacity building, RD&D investments, and cross-sectoral coordination (e.g., with transport for e-mobility). Monitoring via periodic reviews will be crucial.

Conclusion

Bhutan's National Energy Policy 2025 is a visionary document that balances tradition with innovation, safeguarding hydropower while embracing renewables for a sustainable future. Its emphasis on security, efficiency, and green growth aligns with national priorities, but effective implementation will require robust governance and adaptive strategies. As Bhutan navigates global energy shifts, this policy could serve as a model for small, resource-rich nations committed to climate action.