The potential of modern energy to contribute to increasing incomes for the poor in developing countries is widely recognized, and the topic is receiving increasing attention both from the perspectives of poverty reduction and from the perspective of increasing the financial feasibility of supplying modern energy infrastructure to rural areas. However, understanding of the mechanisms that link energy supply to income generation and of the circumstances and factors that contribute to positive outcomes are lacking. This research provides such understanding based on empirical evidence from fieldwork in India. By taking the perspective of the entrepreneurs in small scale enterprises in rural areas where an energy supply infrastructure is available at village level, the factors that play a role in their decisions to use modern energy in small scale enterprises and the mechanisms that influence the impacts of modern energy in the enterprises are uncovered. This understanding of factors and mechanisms leads to recommendations for policy development and for implementation of policy both in the field of energy supply and of business support, to increase the impacts of modern energy supply on income generation by the poor.