The funding will be spent on a feasibility study to develop DeltaSteram tidal technology and assess the suitability of a site in West Wales for tidal stream testing.
The EU funding will be backed with £572,000 from the European Regional Development Fund through the Welsh Assembly Government.
As part of the package, Tidal Energy Ltd will carry out site surveys, environmental assessments and design work at the proposed tidal power demonstration site at Ramsey Sound, Pembrokeshire, Wales.
A full-scale prototype of the DeltaStream tidal power device is expected in 2011. Once installed, the tidal device will have a capacity of 1.2 MW.
Chris Williams, Development Director of Tidal Energy says: “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.”
Environment Minister Jane Davidson, adds: “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.”