The main issue I could see with waterwheels as opposed to windmills is upscaling quantity. A large number of waterwheels would need a larger footprint than an equivalent number of windmills.
You'd also be limited with waterwheel speed by how fast your river runs while you can always build the windmills higher to access faster winds.
And while I'm sure there are realistic ways around those limitations I don't think I'd WANT them in game. I think this way the two balance each other nicely and both would continue to add value.
