Water reservoir is the place behind the dam where water is stored. The water in the reservoir is located at the height above the rest of the dam structure. The height of water in the reservoir decides how much potential energy water possesses. Higher the height of water more is its potential energy. The high position of water in the reservoir also enables it to move downwards effortlessly due to gravity.
The height of water in the reservoir is higher than the natural height of water flowing in the river, hence water in reservoir is considered to be altered equilibrium. This also helps to increase the overall potential energy of water, which helps ultimately produce more electricity in the power generation unit.