Bhutan has increased exports of surplus hydropower generation, whereas Nepal has been suffering from domestic power shortages. Why has Bhutan successfully promoted hydropower development and exports, while Nepal has failed to do so? This paper focuses on inherent development barriers that stem from domestic power supply, internal governance systems, and indigenous societal sensitivity. There are lessons to be learned from Bhutan’s practices that could be applied in Nepal. First, hydropower development can be severely affected by electricity scarcity that arises when power export is privileged over domestic power supply. Nepal has fallen into this negative loop, whereas Bhutan has overcome it through policy interventions that ensure visible links between power exports and domestic power consumption. Second, the sector reforms in the two countries contrast in terms of institutional, operational, and financial efficiency. Without fundamental reforms, Nepal’s sector-wide inefficiency fuels a vicious circle. Third, local resource conflicts and social complexities have made Nepal’s hydropower projects more complicated than Bhutan’s. In planning hydropower projects, it is crucial to pay careful attention to domestic stakeholders and local benefits. Planners and governments must ensure that projects are designed with extensive benefit sharing mechanisms, sustainable value chains, effective sector reforms, and sufficient societal conflict management.

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