Evaluating the sustainable operation of community-owned and community-operated renewable energy projects is complex. The development of a project often depends on the actions of diverse stakeholders, including the government, industry and communities. Throughout the project cycle, these interrelated actions impact the sustainability of the project. In this paper, the typical project cycle of a micro-hydropower plant in Nepal is used to demonstrate that key events throughout the project cycle affect a plant’s ability to operate sustainably. Through a critical analysis of the available literature, policy and project documentation and interviews with manufacturers, drivers that affect the sustainability of plants are found. Examples include weak specification of civil components during tendering, quality control issues during manufacture, poor quality of construction and trained operators leaving their position. Opportunities to minimise both the occurrence and the severity of threats to sustainability are identified. For the micro-hydropower industry in Nepal, recommendations are made for specific actions by the relevant stakeholders at appropriate moments in the project cycle. More broadly, the findings demonstrate that the complex nature of developing community energy projects requires a holistic consideration of the complete project process.