Abstract Hydropower is powered by water, making it a clean source of energy. It contributes about 17% of worldwide annual energy generation and 90% of national energy generation, out of which 25% of its generation is contributed by small hydropower plants (SHPs). Thus, Nepal is predominantly dependent on a clean source of energy for power generation. In quantitative terms, approximately 70% of hydropower plants in Nepal are SHPs. Unfortunately, there are several bottlenecks to the smooth operation of these plants, viz. run-off-river hydropower with low water flow in dry season, insufficiency of proper guidance monitoring, regularization and inadequate and unfriendly policies. The study is based on primary and secondary data considering the SHPs spreading from eastern to western Nepal. Furthermore, the study follows the multicriteria decision analysis method to generalize the major issues at the sites. Inadequate water flow in the dry season is not the only issue for reduction in power generation; mechanical failure due to lack of monitoring and periodical maintenance is the predominant reason for the reduction in power output. This study discusses the role of reduction in water flow, unavailability of a trained workforce in rural hydropower areas, absence of appropriate equipment monitoring guidelines and inconsistent maintenance in the equipment failure and power production of hydropower plants. Every one in three SHPs has issues with smooth operation in terms of generation capacity, and overall, 50% of SHPs have mechanical issues as the major problem, which concludes the findings of the research.