Yeah, I also thought about the balancing.
I settled for limiting it to rivers for now, since it is nice to settle next to rivers anyway because of the unlimited freshwater you can get from them.
In terms of energy production I will limit it to just enough rotational energy as is needed to power the first automatic hammer after conversion to ku.
This way, even if not limited to rivers it would be way to weak to just spam it and merge the rotational energies with gearboxes. It would probably be more efficent to use the space as treefarm for boilers.
As for the derpy river generation if I remove the limitation for the waterwheel to be in the river it would allow one to build their own river to place it in.
Since I also plan to make the meager max output of the waterwheel easily achievable I would also avoid the stupid looking contraption from immersive engineering which only occures because of minmaxing the output for the waterwheels.