In water-deficient rivers, environmental flows (e-flows) are usually sustained via inter-basin water transfer projects from water-sufficient rivers, but these projects incur tremendous costs and may lead to many negative ecological effects, such as ecological invasion. This research proposed to transfer hydropower instead of water from water-sufficient rivers, because hydropower could substitute for water to promote economic development and reduce water withdrawal from water-deficient rivers (conserved water). In addition, based on the analysis of eco-hydrological processes, the flow regime alteration plays an important role in restoring riverine ecosystem. With the goal of minimum flow regime alternation, we set up two scenarios to distribute the annual conserved water, and determined the optimal amount of transferred hydropower and the optimal use of conserved water, which could effectively sustain the e-flows. Accordingly, this paper established a computable general equilibrium model to analyse the substitution of hydropower for water in a water-deficient river basin, and determined the water withdrawal volume that could be reduced. We adopted a range-of-variability approach to measure the degree of flow regime alteration, and optimized the flow regime management scheme. The Luanhe River Basin was adopted as a study case. The results showed that: the water-hydropower equivalent decreased as the transferred hydropower into the Luanhe River Basin increased; a transferred hydropower amount of 22.46 kWh/s, equivalent to 18.30 m³/s conserved water, was optimal for the river basin; the conserved water should be distributed to the Luanhe River in the proportions of 0.55:0.1:0.35 during the wet, normal and dry seasons, respectively, which is the optimal scheme to sustain the hydrological processes of the river.