The Lao power sector is still in its infancy, with less than half of the population having access to electricity. The hydropower sector has the potential to play a pivotal role in achieving the social and economic development objectives of the Government of the Lao People’s Democratic Republic by expanding the availability of low cost, reliable electricity within the country and earning revenue from export sales to the region. The Government’s power sector policy facilitates these objectives by encouraging optimal use of the country's natural resources, promoting efficiency in power sector institutions and creating an environment conducive to responsible infrastructure investment, both public and private. 

Lao PDR is classified as a Least Developed Country. It is a poor, mountainous and highly forested landlocked country with few options to secure a sustainable and environmentally sound economic and social development. With a population of about six million, its chances of developing labour intensive industries are limited, although in recent years its mineralogical resource base has become an important source of export revenues. Most of the population lives in the countryside and many survive on less than US$2 a day. Per capita GDP is not much more than US$500.  The Lao Government feels the development of hydroelectric power facilities represents a highly appropriate method of achieving sustainable social and economic development. Lao PDR’s national borders incorporate a significant part of the Mekong River basin. Its main tributaries contribute around 35% of total inflows of the Mekong River. As the country intercepts monsoons from two directions - from the Gulf of Thailand and the Gulf of Tonkin - precipitation is considerably high and favourable for hydropower development. This presents an opportunity for Laos to develop hydropower plants to meet its domestic electrification needs and also to export electricity to neighboring countries where demand for electric power has been steadily increasing. 

Hydropower is seen as a cost-effective energy source in Lao which has a theoretical hydroelectric potential of about 26,500MW excluding the mainstream Mekong. Of this, about 18,000MW is technically exploitable, with 12,500MW found in the major Mekong sub-basins and the remainder in minor Mekong or non-Mekong basins. Less than 2% of the country's hydropower potential has been developed over the past 30 years, but under present government policy the rate of development will accelerate to supply electricity to the rapidly growing economies of the region. In 1996 at its 6th Party Congress, the Lao Government set a poverty reduction goal which aimed to take the country from the group of Least Developed Countries by 2020. The power sector in Lao PDR serves two vital national priorities: (1)     it promotes economic and social advancement by providing a reliable and affordable domestic power supply; (2)   it earns foreign exchange from electricity exports. The power sector, and especially hydropower, has already become an important contributor to Lao PDR's economic growth and its national poverty eradication effort. In 2008 the export of electricity amounted to approximately 30% of all Lao PDR’s export levels. Agreements for future hydropower exports are in place with Thailand, Vietnam and Cambodia.

In 2007 the Lao Government said that by 2015 it was committed to supply 7,000MW to Thailand, 5,000MW to Vietnam and 1,500MW to Cambodia. The government will use the profits from hydropower sales to fight poverty  in the country. In addition to international supply commitments, domestic energy consumption is growing at 8% to 10% annually.  The Government of the Lao PDR has to date signed MOUs or is undertaking research studies on a total of more than 70 hydropower projects.  Of these 15 are either operational or under construction.

See also: History of hydropower in Lao PDR