The recent energy crisis combined with environmental degradation has led the planners to switch to renewable and clean energy technologies. The present study aims to estimate the cost and benefits of Micro hydro power (MHP) plants in rural areas of District Dir (U) Khyber Pakhtunkhwa. The study further assesses the environmental sustainability followed by identifying the challenges in the way of Micro Hydro Power plants. For the analysis, both primary data as well as secondary data is used. Descriptive statistics, Financial and Economic analysis followed by Participatory Reflection and Action (PRA) are used for the analysis of data. The result of the study shows that the expenditure made by MHP connected households on alternative energy sources is less as compared to the expenditure made by WAPDA connected households. Financial and Economic analysis show that MHP is a feasible and viable technology. Further, the available MHP units in the area can reduce the Green House Gas (GHG) emissions by 3180 tons of CO2eq per annum by replacing the use of fossil fuels. By registering the project with CDM, it can earn $95400 per annum. Based on these results, policy makers should support and encourage renewable energy installations in rural areas in the form of Micro hydro power technology. The government should also establish technical training institutes to impart basic skills to the operators of the plants. There is also a need for proper institutional arrangement to tackle the issues of floods, repairing and other social issues. These projects can be registered with CDM to earn certified emission reductions. Supervisor:- Dr. Anwar Hussain