Micro-hydel plants are used in micro-grid or off-grid areas where there is an adequate availability of hydro potential. In general, micro-hydel systems are embedded with synchronous or asynchronous generator based electronic load controller (ELC) to have better frequency stability. Conventional ELC operate the generator with full load capacity regulating the generator output voltage and frequency. The conventional controller has a demerit of less efficiently. This paper presents a reduced dump load strategy (RDLS) with fault detection and isolation (FDI) for reliable operation of micro-hydro generators. Proposed strategy protects the system from load disturbances and isolates the system during line fault and sensor fault. Reduced dump load strategy with FDI enhances the machine’s lifespan and protects the system from catastrophic failure. Practical implementation of developed reduced dump load strategy using Full Spectrum Simulator (FSS) with 3 HP generator is presented in this paper. The presented methodology includes coding based FSS for controlling the dump load and switching operation.