The new grant scheme, which will start in April, will also cap the increase in business rates for other small-scale developments to 10% or £1,000 where there was no previous liability.
It will be application-based and hydro projects will be able to apply for a grant towards both their 2017/18 and 2018/19 rates liability.
The ‘Welcome to Our Woods’ community hydro project in Treherbert, which was officially opened last week, is an example of a project which will benefit from the new 100% rate relief.
Energy, Planning and Rural Affairs Secretary Lesley Griffiths said: “Our new scheme will provide 100% rate relief for community projects towards their non-domestic rates. Crucially, it will provide greater support to hydropower developers in Wales than is available elsewhere in the UK.”