Water management and energy recovery can improve a system’s sustainability and efficiency in a cost-effective solution. This research assesses the renewable energy sources used in the water sector, as well as the related water sector performance indicators within Portuguese water management systems. A deep analysis of 432 water entities in Portugal, based on ERSAR data base, was conducted in order to identify factors to be improved regarding the system efficiency. On the other hand, the potential energy recovery developed in the REDAWN project was also used as a reference for the application of micro hydropower (MHP) solutions in the water sector. A water and energy nexus model was then developed to improve the systems efficiency and sustainability. A real case study in Africa, the Nampula water supply system, located in Mozambique, was selected as a promising potential for energy recovery. The application of a pump-as-turbine (PAT) allows the reduction in system costs and environmental impacts while increasing its efficiency. The proposed MHP has a capacity to generate ~23 MWh/year, providing significant savings. The developed economic analysis indicates the project is profitable, with an IRR ~40% depending on the energy selling price. This project can avoid the emission of more than 12 tCO2 to the atmosphere, and it can help to reduce the system’s real losses by more than 10,000 m3/year. Consequently, it creates a total economic benefit of 7604 EUR/year.