This paper analyzes the cost-effectiveness of building a small hydropower. The term small hydropower is considered to be all hydropowers with a capacity of 1-10 MW. The first part of the paper describes the parts of the hydropower plant in two groups: civil works and electromechanical parts. Civil work includes structural parts such as dams, devices to raise the water level, spillways, intake structures and penstock. A more complex group of small hydro parts includes a turbine and a generator. By choosing the right turbine, the cost-effectiveness of small hydro is higher. Small hydro-turbines can achieve efficiency up to 90%. The type of small hydro is selected depending on the terrain on which it is built, and they can be: run-of-river schemes, site configurations, schemes with the powerhouse at the base of a dam, schemes integrated with an irrigation canal. The final design solution of the small hydro is obtained as a result of a complex and interactive process, where, taking into account the impact on the environment, different technological possibilities are always compared, also taking into account the cost side of the project. The paper develops software for the analysis of annual electricity production from hydropower and cost-effectiveness analysis based on substrates defined by RETScreen software. Hydrological data are usually defined by a flow duration curve, which is assumed to represent conditions during the average hydrological year. Production from small hydropower in the mentioned model was determined on the basis of data on available, designed and residual flow, and on the basis of load, gross head and efficiencies/losses. Turbine efficiency can be entered manually if data are known or approximate expressions are used depending on the type of turbine and its basic parameters. Power available as a fuction of flow, capacity factor, total delivered energy, estimation of plant capacity - are calculated by given model equations, while the power duration curve is defined from the flow duration curve.