Small-scale hydropower is a significant source of renewable and inexpensive energy. This study was carried out to identify suitable potential sites for small-scale hydropower for the generation of electricity along the Awata River in Ethiopia. Primary and secondary data collected from various sources were used in the present study to achieve its objective. After the consistency of rainfall was checked and areal rainfall was estimated using the Theissen polygon method, the rainfall–runoff relationship was simulated using HEC-HMS. The head of each identified site was estimated by using GIS to overlay the DEM and stream network starting at the outlet. To estimate the discharge, the flow duration curve was developed. HEC-HMS performance was evaluated using Nash–Sutcliffe efficiency (NSE), Mean Absolute Error (MAE), Percent Bias (PBIAS), and coefficient of determination (R2). During calibration, the values were 0.82, 4.39, −2.93, and 0.83, and during validation, the values were 0.76, 5.35, 6.25, and 0.76. The identified sites were ranked using an analytical hierarchy process based on a ratio of five criteria. There are twenty-eight sites identified, with estimated power output and energy output of 45.26 MW and 198.79 GWh at 50% and 6.74 MW and 53.23 GWh at 90%, respectively. The overall rank indicated that the selected site code 29 is ranked first and can be used for the implementation of a small hydropower plant. As a result, the design of all the components of small hydropower plants will be required to implement and generate energy for rural areas in future development.