Electrical energy is becoming an essential commodity for the modern life. Every sector, whether industry, technology, transportation, public utilities or the domestic life, is now dependent on electrical power. The dependence on electrical power is becoming more and more, which has resulted into increasing demand for it. Electricity, in the present times, is not only an essential commodity for urban areas but gradually becoming equally essential for rural areas also. In Ethiopia energy produced from Interconnected System is mainly consumed by major load centers like large cities and the industries around them, a very small amount of it reaches to the remote villages. The vast majority of the population lives and works in the rural areas, i.e. in farms and the small towns, villages, and hamlets. These rarely have any kind of access to the interconnected system. Their hope for electrical energy remains in harnessing of power from locally available streams and rivers. Moreover, in Ethiopia, most of the villages are remotely located and interconnected grid system if has to transmit electricity to these villages may not be that much techno-economic viable. This is because long distance transmission lines network has to be developed which may involve huge investment and other infrastructural development. Besides such long distance transmission network will also result into power loss.  Further, in Ethiopia, the topography, especially in the high lands, and natural drainage system provides suitable conditions for local power generation through stand-alone systems. In stand-alone system power may be generated and distributed locally to a cluster of villages. Such stand-alone systems, depending on their installed capacity may be micro, mini or small hydro power plants.  Therefore, for rural electrification, small hydropower installations are the only possible options, as the total power demand and the available capital do not justify installations of interconnected system.  Also, the small hydropower schemes are the appropriate solution to power demand as these require small capital investment and can be completed in a very short period of time, with minimum adverse environmental impacts. Through the present paper an attempt has been made to look into the various aspects of rural electrification in Ethiopia through small hydro power development.