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I think what you're referring to is hydroelectric power. Though it is considered very environmentally friendly overall, given that it is permanently renewable and has no carbon emissions, and is very economical over time, a very large drawback to hydro power created by dams is that they disrupt the natural flow and evolution of major rivers.
Flooding, erosion, shifting course and gravel and silt deposits, not to mention waterfalls all offer unique habitats for fish, plants, algae, and other wildlife, as well as a wealth of microscopic organisms. Besides disrupting natural flows, damming rivers also has a tendency to change the temperature dynamics, which changes the types of organisms that can live there, and the food chains they can support. Salmon are the most well known and perhaps the species most affected by these dams, as they have a much more difficult and less survivable time getting to their original spawning grounds in mountain streams.
A dam on the Elwha River in Washington State was just removed to try and restore natural flows and salmon runs, so we'll be able to see how quickly the species recovers in the future, and thus will know just how much it was effected by the existence of a dam.
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