In a report to be unveiled at the British Hydropower Association conference in Glasgow on Tuesday, Carluke-based Baby Hydro will say the industry is "floundering" through a combination of poor grid connections, lack of suitably skilled workers and difficulties raising finance.
Baby Hydro, whose predecessor Nick Forrest Associates modelled the hydroelectric industry for the Scottish Government in 2008, has reduced its forecast build-out of hydro to 2020 by 30% to around 112MW.
This will shave about £180m from the income such schemes can expect from subsidies and electricity sales over eight years, taking the total down to about £410m by 2020, when the Government aims to generate 100% of electricity from green energy.
Nick Forrest said: "At the moment the commissioning rate is about 7MW a year, much slower than expected. People are not taking on lots of employees and the cost and speed of grid connections is also more of a problem than we thought."
Scotland has a number of large-scale hydro schemes dating as far back as the 1930s and amounting to nearly 1.5GW of capacity, about one-quarter of total Scottish demand.
To harness power from smaller water courses, the authorities introduced a subsidy system of feed-in tariffs. Since the early 2000s this has added about 50MW of capacity from small schemes. Another 100MW has come from Scottish and Southern Energy's larger Glendoe scheme.
Nick Forrest Associates' original report estimated there was about 650MW of outstanding capacity. The new report increases this figure to almost 1GW, partly because of improved subsidies. But it says only about 330MW is foreseeable taking into account issues such as ease of access, proximity to the grid and environmental regulations.
The report says: "Training courses and budgets for the key disciplines - did not materialise, or at least not to the extent that would be required. But - such workforce growth happens in response to demand, and the construction of new projects is not growing at the same rate as the consents would suggest."
It suggests a number of reasons for the problem. These include grid capacity, environmental impact, land-ownership issues, revenue support, funding, and the industry's original figures for the number of schemes taking place being an under-estimate, distorting the original forecasts.
Carl Crompton, director of hydro developer Gilkes Energy, said "The changes to the feed-in tariffs are positive and provide the certainty the industry needs. However, the feed-in tariffs provide just enough in terms of financial return and we have to work hard to keep costs down.
"There are also other challenges that seem to work against us. Projects are often grid-constrained and there are typically a large number of individuals or organisations which need to be consulted – planners, regulators, lawyers, consultants, landowners, investors, contractors etc.
"Unlike wind and solar, there is little standardisation of 'hard' equipment in hydro – one of the few opportunities to keep costs down is the 'soft' costs, which means quicker, simpler and more streamlined planning, permitting, financing and legal work – and less, not more regulation - If we can't bring costs down then simply fewer schemes will get developed."