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Micro hydropower (MH) plants have played an important role in electrifying rural villages in Nepal. There are well above 2000 MH plants in the country which generate around 15 MW and electrify more than 150 thousand households. Nepal has developed good technical capacity in MH turbine manufacturing and there are more than 20 MH turbine manufacturing companies. However, there are various technical challenges in Nepali MH sector. The overall efficiencies of MH plants are very low and there are very less end use devices in villages which have led to poor revenue generation from MH plants. Moreover, the country lacks skilled manpower in villages where MH plants are located. Besides, Nepal does not have good technical competence in manufacturing Francis turbines and MH generators so the country is still not self dependent on MH technology. In this paper, present status of micro hydropower plants in Nepal is discussed and explores various technical challenges. Furthermore, it also recommends different solutions to overcome the technical challenges.