LocationsAs hydropower-rich Bhutan pursues solar to diversify its renewable energy source and maintain carbon neutral status, UNDP is supporting the government in shaping a private sector led energy market so the country can harness its 12 GW solar potential.
Harnessing Bhutan’s solar potential with market-driven solutions
May 12, 2025
180-kW grid-tied solar photovoltaic (PV) plant in Wangdue Phodrang district supported by UNDP and the Government of Japan.
Nearly all of Bhutan’s electricity comes from its glacier-fed hydropower plants. In a first major step towards diversifying its energy mix, the Himalayan Kingdom initiated a 180-kW grid-tied solar photovoltaic (PV) plant in Wangdue Phodrang district. This pilot project, supported by the Government of Japan and UNDP, demonstrated the potential of solar energy in a country whose future had long been tied to hydropower.
At the plant’s inauguration in October 2021, Lyonpo Tashi Dorji, then Chairperson of the National Council of Bhutan, noted, “Today we are not just inaugurating a solar plant, but also making history.” The US$210,000 project marked the start of Bhutan’s quest to tap into its 12GW solar energy potential, essential for enhancing national energy security and to always remain carbon neutral.
The growing need for diversification
Hydropower, dubbed Bhutan’s “White Gold”, is a major economic driver and remains the highest contributor to the national revenue. But climate change is increasingly posing risks to hydro power. Rising temperatures are not only melting glaciers at an unprecedented rate but are also disrupting river flows and magnifying the risk of Glacial Lake Outburst Floods.
At the same time, the domestic energy demand is soaring. The country’s electricity imports from neighboring India to meet shortfalls during the dry winter months is steadily increasing, costing Bhutan millions of dollars annually. This energy gap is expected to further widen in the coming decade, with electricity demand projected to quadruple as Bhutan embarks on its new ambition to achieve a tenfold increase in its GDP, from the current approximate US$2.5 billion to US$25 billion.
Fostering a market-driven renewable energy sector
Solar energy offers a promising solution, and Bhutan has set ambitious targets: 500 MW by 2025 and 1,000 MW by 2030. In line with these goals, a 22.38 MW solar farm is currently under construction in Sephu, while a 30 MW solar farm is planned in Bumthang district. To realise its ambitious solar goals, Bhutan needs more than just infrastructure— it needs a sustainable, market-driven energy sector.
At present, the country’s energy market is state led. Bhutan also remains constrained by a weak private sector with limited policy and fiscal incentives, and access to finance impeding private sector investment in the energy sector. In response, Bhutan, with support from UNDP, is undertaking sweeping energy policy reforms. This support was provided through UNDP’s Core Resources.
The national energy policy, revised in 2024 as part of the effort, is designed to open the energy sector to private investment. It encourages nurturing of private-led Energy Service Companies (ESCOs) and their participation in the design, construction, and operation of renewable energy projects. This marks a shift from a state-led to a private-sector-driven market, crucial for unlocking the country’s 12GW solar energy market. Private sector led energy market will also help create green jobs, contributing towards addressing the country’s unemployment challenge.
Bridging financing gap is crucial for driving substantial investments in the renewable energy at scale. The revised national energy policy promotes mechanisms, such as blended financing, Foreign Direct Investment (FDI) and energy bonds to catalyze funding, including private capital, needed to fuel renewable energy growth.
Sparking new partnerships
These efforts of the Ministry of Natural Resources and Energy, supported by UNDP, has already brought about concrete results. US$80k investment from UNDP’s Core Resources for this strategic priority has helped attract 20 million Euro from the Mitigation Action Facility (MAF) for a new project aimed at accelerating decarbonization through market-driven solar power solutions. As a starting point, the project will establish a private sector driven 30 MW solar energy through blended finance mechanisms and a series of policy reforms. This is a significant step towards harnessing Bhutan’s full solar energy potential of 12 GW, while creating 2500 green jobs.
