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ultimately the output of any hydro scheme is limited by the head and the flow rate, and your project worker may have established 200 kVA as the limit.
This link offers calculators for small hydro, and info on a variety of backup power systems.
if the problem is one of both insufficiency and intermittency, then it seems any backup option has to have the ability to provide storage from renewables when grid power is available, and then combination of storage and renewable when the grid power goes away.
Because these "backup" systems are limited in capacity, I don't see one single solution as working; a combination will be necessary.
Finally, what does the project worker regard as "large residential"? If 200 kVA is way too small, and the average residential load is maybe 2 kVA, then we're talking about residential areas encompassing
- 500+ dwellings? -1000+ dwellings?
Are there also business and small industrial/commercial users on the system?