I guess the problem is scale, after all. I'm quite bad at physical calculations, so the below may be wrong.
Even a small hydroelectric dam generates gigawatts of power. Assuming a 30 meter tall cliff, each cubic meter of water generates 294 kJ when descending. To produce 1 GW of power, we would need 1,000,000/294=3400 cubic meters of water descending every second (watt = joule/second).
If we build a lake at the top, 10 meters deep and 1 kilometer on a side, it would contain 10 million cubic meters of water. If we run it at 1GW, it would be emptied after 49 minutes. Not very useful, after all.
It makes me really appreciate the scale of natural phenomena like Niagara Falls.
Apart from what g_pepper has correctly pointed out regarding size/power of hydro plants...
If we build a lake at the top, 10 meters deep and 1 kilometer on a side
With the right terrain, this is pretty trivial, all you need is a relatively small dam wall closing off a small ravine between mountains... here is a nice example:
http://www.iwb.ch/media/de/picdb/2012/366/nant_de_drance_stausee_vieux.jpg
http://www.iwb.ch/media/de/picdb/2012/367/nant_de_drance_stauseen_vieu.jpg
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