The sustainability of the water supply sector is particularly crucial due to the high costs and energy demands of water treatment and distribution. One promising strategy to make pipe-borne water supply systems energy efficient involves recovering excess energy in water distribution systems by integrating micro-turbines into existing Pressure Reducing Valves (PRVs). This strategy not only enhances the sustainability of water supply networks but also reduces GHG emissions. This research aims to evaluate the technical and economic feasibility of generating hydro energy by installing in-conduit micro-hydro turbines in Sri Lanka’s Water Distribution Networks (WDNs). A technical evaluation criterion identifies optimal PRV locations for micro-hydro turbine installation, while economic feasibility is assessed through cost-benefit and sensitivity analyses. The methodology is demonstrated through a case study of the Kandy-North Pathadumbara Integrated Water Supply Project, which involves the installation of 85 PRVs. The analysis includes a cost-benefit comparison of using different turbine types. The study reveals that it is optimal to integrate 20 micro-turbines of capacities ranging from 1.5 kW to 8.5 kW into proposed PRV locations. The resulted total installed capacity of these turbines range between 53–65 kW and can generate around 292–360 MWh of energy per year. Based on results of the study, guidelines for installing turbines in WDNs are provided. This methodological framework serves as a model for similar initiatives aimed at enhancing sustainability and energy efficiency in water distribution networks through hydro-energy recovery.