Due to various pressures and desires more and more developing countries embark on power sector reform programmes. Yet, there are a wide range of reform options and at present insufficient evidence is available as to which path will deliver best the desired objectives. Presently, most Small Island Developing States (SIDS) are dependent on high-cost fossil fuel imports for power generation. In spite of evidence that harnessing abundant domestic renewable sources of energy can deliver environmental, social and economic benefits. However, depending on the type of power sector reform the transition towards renewable energy technologies (RETs) can be either undermined or facilitated. The specific focus on SIDS is justified because they have inherent characteristics that limit the degree to which the power sector can be transformed in comparison to larger continental developing countries. With specific reference to SIDS this manuscript reviews the drivers and desires for power sector reform, as well as presenting the available reform options and their implications on the up-take of RETs. In addition to elaborating aspects of market governance, other barriers to the consideration of RETs, such as financial bias in investment, human capacity and environmental policy are discussed. In view of this discussion, which is based on evidence from recent reform programmes and theoretical academic literature, recommendations are formulated that discourage full privatisation of the power sector, as well as proposing less dogmatic lending conditions by international assistance bodies.