In the time where British capitalists in the cotton industry (leader of the industrial revolution) switched from investing in water to steam power, the consensus was strong that water power was cheaper and more abundant than steam. England's water potential was nowhere near tapped.
The industrial revolution, that is self-sustaining growth that detached from labour intensive and became capital intensive, started in the 1780s with the Arkwright mills... the transition to mostly investing in steam engines came in 1830.
The advantage was less to do with steam engines being more powerful or cheaper, and more to do with labour and the ability of capitalists to cooperate.
On the first count. Good sites for waterwheels were often in the countryside. You needed to either keep captive labour (the apprentice system, which found very low motivation workers and people escaping all the time, plus extra costs of room and board etc), or lure labour (cotton colonies, where you paid high wages and set up schools, cottages etc etc)- local labour is in short supply and is not willing to submit to wage labour and factory discipline. Either option are very expensive. Steam engines go where you want, in the teeming towns where people were increasingly used to the masters and had no alternative but wage labour.
This became more severe after the factory acts and labour victories in the 1830s and 1840s, which limited working hours and the ability to make up time- so if your stream was irregular you could not call people back to work when it starts going good. Steam did not have this issue.
On the second count. Robert Thom, and all of New England, demonstrated that you could keep expanding water power by entering into cooperative reservoir arrangements. Thom's ideas got rejected by established cotton capitalists, as they loved the power and cheapness that it offered, but couldn't stomach sticking to a schedule of opening gates, couldn't work with people upstream, couldn't share responsibility. The New England capitalists were able to come into sites and monopolise them, setting up these reservoirs without the issue of cooperation, but ran into the same issues as things scaled up, over-production became an issue and people kept trying to expand.
Thom-esque systems would let you bypass the first issue by keeping things concentrated and regular, and reap the benefits of agglomeration too. But capitalists locked in intense competition could not work together like this, and switched to coal.
Without coal, the industrial revolution would have been able to go ahead- without the option for coal, the capitalists would have gone with the reservoir systems as the alternative was failure. This likely means we get more consolidated bigger companies earlier, or more state involvement in industrial countries, as there is this need for large scale cooperation that wasn't present in OTL. It would have initially been limited to where there is waterheads, not where there is coal, but in the long run hydroelectricity and geothermal electricity would have allowed it to spread widely- nuclear power would be very significant once it is available, as it frees you from the land.