Every energy generation technology, including hydropower, has its own strengths and shortcomings. We carried out vulnerability assessment (VA) applying a bottom‐up multi‐disciplinary indicator‐based method considering people's perception of five dimensions of a storage type (ST) “national pride” hydropower project–1200 MW Budhi Gandaki Hydropower Project (BGHP) in Nepal. We also examined how ST projects can contribute to sustainable development goals (SDGs) overcoming the vulnerabilities. Primary data on people's perception were collected through focus group discussions and 200 household questionnaire surveys conducted within the most vulnerable areas. People perceived the “Physical” dimension as the most impactful. The local community is optimistic about some infrastructure development, but issues related to compensation, resettlement and physical stressors were found to be very sensitive for the effective implementation of the project. Expectations of the local people and proposed plans by the government are concurrent in some issues but not in all. Our analysis shows that the BGHP has the potential to be multi‐dimensionally beneficial (to eight SDGs) for Nepal, provided that supportive policies are formulated and implemented stringently. Extending the project as multi‐purpose, pumped storage and other improvements such as floatovoltaics are some of the plausible recommendations for harnessing maximum benefits from this important project while minimizing threats. Moreover, the methodological framework can be conveniently replicated for conducting VA of hydropower projects under comparable physical and socio‐economic conditions.