The 7.5 megawatt Kildermorie scheme, near Ardross in Easter Ross, will see a 220m long dam constructed across Gleann Mhuire running to around 12m in height.
A semi-buried powerhouse will be built, along with a tailrace to carry water away, upstream of Kildermorie Lodge.
Tendering is due to get underway shortly with work scheduled to start in 6-12 months .
Up to 80 jobs are expected to be created during the two-year construction project, and income will go back into managing the Kildermorie Estate.
The Scottish Government has set a target is to meet 50% of electricity demand from renewables by 2020.
In 2008, 22% of electricity demand came from renewables.
There is around 7 gigawatts of renewables capacity installed, under construction or consented around Scotland, which will take country beyond the interim target of 31% electricity demand from renewables by 2011.
The Scottish Government’s energy department is currently processing 33 applications – 24 onshore wind, 6 hydro and 3 thermal.