the cheapest way i can percieve to solve the issue would be a ultrasonic chirpier and receiver (i ruled out leds the more i thought about how do you tell a hand apart from the water flowing) fire off a very low amplitude shaped pulse (e.g. a two tone), and measure the returned peaks, if it changes drastically such as when an object is brought in the path turn on, then as we are playing with sound, start looking at peaks before the distance of the water flow to know how long to keep on, a hand generally intersect the flow, have a small timeout, e.g. 5 seconds, then turn back off,
At least that is my take on the problem seeing as low power micros with an ADC, and a peak detector circuit are easy to make,
wake up, chirp, if peak is within distance turn on, stay on chirping until peak no longer found, turn off, go to sleep