The £1.3 million scheme is to be installed at Murray's Cauld on the Ettrick water near Selkirk. It will be the first modern hydro-electric scheme in the area and will also see improvements made to the cauld, including new fish passes for different species such as salmon and eels.
Councillors approved the project earlier this month.
Progress has been hampered by high water levels, but it is hoped the scheme will be up and running by next summer. The estate owner, Sir Michael Strang Steel, says the location is perfect.