The U.K. subsidiary of German utility E.ON AG (EOAN.XE) Tuesday launched its first wave power generator in the U.K. for testing as companies race to develop and lead the fledgling wave and tidal stream sector.

Scotland's First Minister Alex Salmond launched the P2 750-kilowatt wave energy device constructed by U.K. renewable energy company Pelamis Wave Power Ltd. at Leith Port in Edinburgh, Scotland. The machine will be towed to the European marine Energy Centre in Orkney, Scotland where it will be installed and tested.

The installation of the Pelamis wave energy converter at EMEC is the first time the P2 machine has been tested anywhere in the world and also represents the U.K.'s first commercial supply contract within the marine energy sector.

"Scotland is well-placed to become the clean, green energy powerhouse of Europe, with as much as 10% of its wave power potential, as well as an estimated one quarter of the continent's offshore wind and tidal energy capacity," Salmond said.

Dubbed the Saudi Arabia of marine energy, the area around Scotland's northern coast has six of the top 10 tidal sites in the U.K. and some of the best wave resources, but there are currently only around 2.4 megawatts of installed capacity in the U.K.

In March, Iberdrola SA (IBE.MC), Scottish and Southern Energy PLC (SSE.LN) and wave and tidal developers won leases to develop 1.2 gigawatts of wave and tidal power off the coast of Scotland.

The tender, the largest of its kind in the world, is a step in U.K. plans to develop and lead the wave and tidal stream sector and move from prototypes and small-scale demonstration projects to commercial-scale arrays to help meet U.K. climate change targets and reduce dependence on imported fossil fuels.

It is hoped these early projects in Scotland will set the industry on the path to reducing the high costs associated with the nascent sector as technology is refined, the supply chain expands and economies of scale kick-in. Currently, wave and tidal power is more expensive even than the most costly renewable--offshore wind.

Other challenges are technological, financial and the sheer physical challenge of operating in the harsh marine environment.

E.ON U.K. Chief Executive Paul Golby said it was important to continue to invest in such new technologies in order to accelerate the transition to a low-carbon economy.

-By Selina Williams, Dow Jones Newswires +44 207 842 9262; selina.williams@dowjones.com
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