Rural energy in developing countries is discussed with a view to sustainable development. The project-oriented approach in rural energy which has often dominated in the past, is contrasted with an overall strategy for sustainable rural energy demand and supply. An outline for a demand-oriented policy is formulated, indicating the role of the government in energy pricing and market development. Special attention is given to electricity as the fastest-growing energy subsector. It is concluded that major changes are required to accommodate and institutionalize the planning of decentralized energy supply.