Releasing environmental flows is a valuable strategy for mitigating negative impacts of small-scale hydropower projects on river and riparian ecosystems. However, maintaining environmental flows has faced considerable resistance from different stakeholders, and previous studies have failed to appropriately investigate solutions. Here, online questionnaires and interviews were conducted among small-scale hydropower project owners, government administrators, and the public in Fujian Province, China. The results showed that the major hindrance to implementing environmental flows was the potential economic loss resulting from reductions in electricity production, stakeholders’ skepticism, technical difficulties, and a lack of the government supervision. Diversion-type projects pose the largest losses of electricity production after the release of environmental flows, and by adopting a 10% of mean annual flow as minimum target, most small-scale hydropower projects obtain low marginal profits without compensation. Here, we proposed an appropriate payment for ecosystem services by introducing an economic compensation program for different types of small-scale hydropower projects scaled by potential losses in electricity generation. Under such a scheme, economic losses from a reduction in electricity production are covered by the government, hydropower project owners, and electricity consumers. Our study offers recommendations for policymakers, officials, and researchers for conflict mitigation when implementing environmental flows.