Energy security in Least Developed Countries(LDC) is a major challenge that needs to be addressed properly. The volatile nature of international energy market has aggravated the energy crisis in Nepal which depends for 100% on imports for petroleum oil products and coal. With very low rate of electricity penetration, the rural poor are dependent on kerosene for lighting purposes. Spiraling prices of petroleum oil and somewhat unreliable supply mechanism make the life of rural people especially those below poverty level very tough. Rural people's overwhelming dependence on firewood has resulted in depletion of the forest coverage to alarmingly low level and prompted environmentalist and government planners to work in close coordination both for better energy security for the rural population as well as halt the rapid deforestation with potentially catastrophic outcomes. The abundant availability of renewable energy sources in the country has shown glimpse of hope. This paper will discuss the renewable energy development status and challenges faced to date in Nepal and will also suggest remedies for better utilization of the available renewable energy resources. © 2010 IEEE.