This paper analyzes the economic aspects of subsidy policy in the area of small hydro power plants. It confronts the current practice with the theory and proposes an economically effective solution. It is the first of a series of contributions devoted to providing subsidies to producers of renewable energy to which, among others, belong running water, biofuels, wind and solar radiation. It is based on the results of three case studies dealing with the analysis of the economic efficiency of small hydro power plants, which are solved by the “case-based reasoning” approach. The first two studies relate to the already completed and operating hydro power plants on the rivers Sázava and Litavka in the Czech Republic. Their parameters and other required data are accessible at http://www.eis.cz. The third analyzed project is in the planning stage and has not yet been implemented or subsidized. Calculations are based on budgeted data and are used for demonstration and illustration of the proposed criteria of the effective economic subsidy policy.