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You can build a dam anywhere. However if you want to use more of the natural terrain rather than terraform your own, then look for a good supply of water in large volume and differences in terrain height. This is important since it isn't just flow that determines the power output. The difference in height of the water volume behind the dam and in front of the dam is crucial.
Create a hollow mountain up to maximum world height.
Place the largest water source as high as you can inside the mountain.
Place another largest water source at sea level below the mountain.
Open the mountain wall facing the water source at sea level.
Build walls to make sure water only flows between the two water sources and doesn't escape.
Start the map.
http://steamcommunity.com/sharedfiles/filedetails/?id=1120453618
My budget is set to 50% which is why it shows 800MW, but the overlay power is below that !!
http://steamcommunity.com/sharedfiles/filedetails/?id=643348291