Welsh Government has requested talks later this week with small-scale hydro operators after a backlash to the plan to withdraw rates grant.
The meeting follows a row last week when ministers were accused of abandoning the sector after scrapping a crucial business grant.
Hydro power schemes were threatened with giant rate hikes three years ago when there was a revaluation but a temporary relief grant was introduced for small commercial projects to cap increases in business rates at 10% – or £1,000.
But Welsh Government has informed the British Hydropower Association it would not renew this from April 1 next year.
The British Hydropower Association (BHA) says ministers need to come to the table with a compromise solution which will offer continued short-term support to the sector, while a long-term solution to excessive business rates is implemented.
Ed Bailey, whose family run a sheep and cattle farm in Snowdonia, said: “The Welsh Government says that Welsh farming families need to diversify more to manage the risks associated with Brexit.
“But how can the farming community trust their stance if, on the other hand, the same Welsh Government is willing to pull support from those farmers who have – like us - diversified, particularly when they have the evidence of the impact this will have on those people that the grant supports?”
As a result of diversification of his business, Bailey now runs two small-scale hydro plants which were eligible for the scrapped grant.
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The BHA, which accused ministers last week of abandoning the sector, has been invited to a Welsh Government meeting on Friday.
Simon Hamlyn, chief executive of the BHA, said: “Last week, the Welsh Government claimed there was no evidence that small-scale hydro operators would close or be sold off as a result of the decision to scrap the business grant.
"This is wholly untrue. The government was presented with evidence by us in January which showed that 75% of small-scale hydro operators in Wales will almost certainly be affected and that some would close, and they have chosen to ignore it.
“They have also decided to ignore the solution recommended by a report which they commissioned which said that ‘Prescribed Assessment’ was the answer, a method which has previously been used by the Welsh Government to remove uncertainty for certain classes of property for ratepayers. This is the long-term solution for hydro operators.”
Aberconwy MS Janet Finch-Saunders, Shadow Minister for Climate Change, Energy and Rural Affairs, said: "I have consistently asked the Welsh Government to look at introducing a hydropower development programme which helps landowners to invest in such projects."
A Welsh Government spokeswoman said: “Over half of Wales electricity needs are now met through renewables, including a 2% contribution from Wales’s 363 hydropower projects.
"We are also 83% of the way towards meeting our local ownership target of 1GW by 2030 – with 825 MW of renewable energy capacity in local ownership.
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“The support scheme we introduced in 2018 has provided more than £1m of support to the sector.
"We have worked closely with the British Hydropower Association to address the impact of the 2017 revaluation of business rates on the sector, and will consider options for longer term support for hydropower and other renewable technologies when the next revaluation takes place.
“The impact of Covid-19 has put unprecedented pressure on budgets and difficult decisions need to be made on where to prioritise future support.
"To date, we have no evidence of hydropower projects ceasing to operate due to unsustainable costs.”