Increase in energy demand has not only exerted substantial pressure on Nepal''s limited forest resources but also has a negative effect on its environment and economy. Nepal has no fossil fuel of its own and all requirements have to be imported. Renewable options, such as wind, solar power, are not technologically ready for mass dissemination. The use of micro hydroelectricity is, therefore, the most promising option for remote hill communities in Nepal for the foreseeable future. MHPP is the best alternative for providing power to those isolated rural villages of Nepal. Seeing this many institution are directly involved within this sector making the marketing prospects even more promising. This even assisted in the expansion of power market to those areas where the national grid has not been extended. With this in view this study has tried to cover some of the burning issues related with the energy market and proper regulation of the market with proper regulation and supply of power. Talking about market both internal and external this study tried to short out all the problems related with both of them. It also analyze the institutional set up and government policies.