Nepal's latest federal budget offers an important opportunity to reposition the country's development trajectory. Following the Gen Z-led protests and elections, the new government faces mounting political pressure, a fragile economy, weak private-sector confidence, and rising public expectations particularly from a restive and aspirational youth population demanding reform and opportunity. Yet, within this challenging context, one sector stands out for its strategic clarity: energy. The recent budget signals a shift from viewing electricity as a standalone infrastructure sector to positioning it as a central driver of economic transformation. For years, Nepal's energy discourse has focussed heavily on generation. While that remains important, the latest budget moves beyond this narrow lens. It sets a target of 5 GW installed capacity while diversifying the energy mix, with 30% of new capacity expected to come from solar. This marks an important evolution for a system historically dominated by hydropower, particularly given the seasonal variability that limits generation during dry winter months. Storage-based and reservoir hydropower projects such as Budhigandaki and Upper Arun are central to this approach. The budget also places emphasis on transmission infrastructure and cross-border connectivity. This is critical not just for exports, but for balancing seasonal supply fluctuations through regional energy trade. At the same time, projects like the Karnali Corridor aim to address longstanding last-mile connectivity gaps, extending reliable electricity access to remote regions. The more significant shift, however, lies on the demand side. Nepal is increasingly recognising that building generation capacity alone does not create economic value unless there is enough domestic consumption to absorb it. The budget positions electricity as a catalyst for industrialisation and economic activity. Tariff reforms and adjustments to demand charges are intended to encourage greater and more efficient electricity use. Support for electricity-intensive industries, including urea production, signals an effort to convert surplus energy into a competitive industrial advantage. A particularly forward-looking element is the emphasis on the digital economy. Plans to digitize government services and establish a Sovereign AI Compute Centre in Kathmandu point to a new source of demand. Globally, data centres and digital infrastructure are rapidly increasing electricity consumption, and Nepal could benefit by powering such growth with clean energy. At the household and agricultural level, initiatives such as electric irrigation systems and financing for electrical appliances aim to expand the productive use of electricity. These measures, though less visible, are critical for broad-based economic impact. The budget also aligns energy policy with Nepal's climate commitments, including its goal of reaching net-zero emissions by 2045. Electrification is emerging as the central strategy to meet these commitments. The transport sector is another major focus. Plans to expand electric mobility in Kathmandu and Pokhara, supported by charging infrastructure and smart systems, aim to reduce reliance on imported fossil fuels. The introduction of a Clean Infrastructure Investment Fee on electric vehicles and batteries seeks to create a sustainable funding stream for this transition. These measures demonstrate how energy policy is being leveraged not only for environmental goals but also for economic and energy security. As the scale and complexity of Nepal's electricity system grows, so does the need for flexibility. The proposed development of a 100 MWh battery energy storage system in the Kathmandu Valley reflects this recognition. Storage will be essential for managing peak demand, integrating variable renewable energy, and maintaining grid stability. The budget also shows early interest in emerging energy technologies. Pilot projects in green hydrogen and ethanol production suggest a willingness to explore future energy pathways, even if these are still at an early stage. Perhaps, the most critical constraint to Nepal's energy ambitions is financing. The budget acknowledges this by introducing new mechanisms to mobilise capital. Clean Energy Bonds and Sovereign Blue Bonds are proposed to attract long-term investment into renewable energy and climate-resilient infrastructure. These instruments could help diversify funding sources and reduce reliance on conventional financing. At the same time, allowing hydropower developers to offer up to 40% of project shares to the public from the outset provides an additional channel for capital mobilisation while broadening public participation. Infrastructure and finance alone will not be enough without strong institutions. The budget's proposed restructuring of the Nepal Electricity Authority into separate generation, transmission, and distribution entities is therefore a significant step. If implemented effectively, this could improve efficiency, transparency and accountability, while creating space for greater competition. The budget also opens the door for private-sector participation in cross-border electricity trade and introduces competitive bidding for dry-season power purchase agreements. Taken together, the budget reflects a clear shift – from a generation-focussed approach to a broader energy transition strategy that links supply, demand, climate goals, finance, and institutional reform. This integrated vision is both necessary and timely. Electricity has the potential to become a central engine of Nepal's economic growth – powering industries, supporting digital transformation, reducing imports, and strengthening climate resilience. But ambition alone will not be enough. The real test lies in execution. Delivering on this vision will require coordination across government agencies, regulators, utilities development partners, and the private sector. Policies must translate into projects, and announcements into outcomes. Malla is the Energy specialist at ICIMOD.