Markets for Renewable Energy (RE) technologies are emerging in Nepal in connection with rural electrification in the country. Two promising technologies are in evidence – solar home system (SHS) and micro-hydro. The availability of abundant renewable resources, lack of fossil fuels and difficult geographical terrain for grid line extensions contribute to the advantages of RE based decentralized rural electrification in Nepal. The distributional analysis shows increase in extensive growth and decrease in the intensive growth rate of rural electrification thus indicating market expansion with uneven penetration among the rural people. Solar PV technology is still not in the reach of the economic poor. This paper discusses and analyzes RE based rural electrification supply models, economics behind rural electrification, market drivers and market distribution in the rural areas of Nepal. Access to credit and cumbersome subsidy delivery mechanism have been perceived as the major factors affecting the expansion of rural electrification by the stakeholders, requiring innovations in credit and subsidy delivery system so that a larger rural population can have access to electrification.