Hydro was always able to manage without subsidy. Only after the RO subsidy was introduced did some operators of hydro downrate their facilities to obtain the subsides. The renewables industry has always lied about onshore wind being the cheapest form of renewables. From an independent 2005 report:

DURING CONSULTATION on New Labour’s renewable energy policy and the Renewables Obligation, which ran from March 1999 to March 2001, government and stakeholders alike agreed that existing large hydro-power stations should, as a mature and profitable technology, be excluded from the subsidies regime.
However, after consultation closed, hydro generators pressed the government to reverse its decision, citing ageing plant and poor trading conditions.
Two major changes were subsequently made to the regulations, both of benefit exclusively to large generators. The first, which eased the qualification criteria for subsidies to include all hydro-power stations under 20 MW, was made public.
The second, which was all-but hidden from public view and did not generally come to light until 2004, brought an even larger portion of the UK’s hydro portfolio into the scheme. It authorised owners to cut the capacity of turbines to bring them below the declared qualification limit.
As a result, since the Renewables Obligation schemes became operational, UK hydro-generation capacity has gone down, not up, for the first time in the technology’s 100-year history. Claims that efficiency improvements offset the capacity cuts are disputed as losses due to increased water wastage are inevitable. These losses are equivalent to closing Pitlochry power station.
This report examines how these decisions came about and the reasoning behind them. It argues that the subsidy payments which large hydro-generation now attracts are not justified by the modest quantity of additional electricity being produced.
Compared to production before the schemes became operational, a megawatt-hour of additional electricity, typically worth around £30, is now attracting subsidies of around £500.
The policy is costing electricity consumers £60 million a year, possibly more, but has done very little to increase the quantity of new ‘renewable’ generation.
It is an appallingly inefficient way to cut CO2 emissions.
This is happening at a time when emerging technologies, including marine technology and photovoltaics, are being starved of resources – both have recently suffered significant setbacks.
This puts yet another question mark over the competence of the Renewables Obligation schemes to tackle the emissions crisis. However, discussion of this issue is explicitly excluded from the current consultations on the schemes.