Machinery will be assembled at a local quay and lowered to the seabed following connection to a subsea cable. Once installed it has a generating capacity of 1.2MW and has been specifically designed to be sensitive to the local environment.

The demonstration project will last for 12 months and during that period will provide a sustainable source of electricity to the people of St Davids.

The money will be spent on a feasibility study to develop DeltaStream technology and assess the suitability of a site in West Wales for tidal stream testing. It will be backed with £572,000 from the European Regional Development Fund through the Welsh Assembly Government.

As part of the package Tidal Energy Limited, the company behind the technology, will be able to carry out site surveys, environmental assessments and design work at the proposed demonstration site at Ramsey Sound, Pembrokeshire.

It is expected that the funding will lead to the deployment of a full-scale prototype device in 2011.

The Minister said: “Earlier this year I launched our energy policy statement A Low Carbon Revolution which outlines that Wales has the potential to produce nearly twice the amount of electricity it currently uses, through wholly renewable sources by 2025.

"Developing renewable technologies is vital if we are to drive forward Wales’ ambitions to become a more sustainable nation and meet our energy targets.

“I am delighted that this innovative offshore project will be the first of its kind in Wales, demonstrating how Wales can lead the way in our commitment to produce clean, renewable energy for the benefit of our communities and, in turn, tackle climate change.”

Managing Director of Tidal Energy Ltd, Martin Murphy said: "This funding is crucial to the success of the project, particularly in the current financial climate, and with the support and encouragement from the Welsh Assembly, we hope to develop a valuable, sustainable business that will not only provide a predictable source of renewable energy, but also initiate a business that could lead to the generation of a number of green jobs.

"This decision by the Welsh Assembly shows its commitment to developing renewable energy technology and its willingness to support home-grown entrepreneurial activity to put Wales on the map for marine renewables in the UK.”

DeltaStream was conceived in Pembrokeshire by local Marine engineer, Richard Ayre, following initial funding from European Structural Funds in 2002..

Chris Williams – Development Director of Tidal Energy Ltd, said of the technology: “As well as being environmentally friendly, DeltaStream has been designed to be easily installed and removed. It does not involve any piling or preparation of the seabed.”

Tidal Energy Limited is backed by Cardiff based renewable energy company Eco2 Limited. Eco2 is Wales’ largest renewable development company and develops projects in biomass, wind and landfill gas.

Chief Executive of Eco2 Ltd – David Williams said: “Tidal power provides a great opportunity to help Wales and the UK Government meet its renewable energy targets. However, investment and commitment is required now to make sure that Wales does not fall behind activity being carried out elsewhere. That is why attaining this funding is so crucial at this time."