* Work on 86 MW array to begin in stages
* Aquamarine Power, Pelamis given funding for tidal development
LONDON, Sept 16 (Reuters) - The Scottish government said on Monday it has given consent on for work to begin on the largest tidal energy project in Europe in Pentland Firth, which separates the Orkney Islands from mainland Scotland.
MeyGen Limited, a joint venture between investment bank Morgan Stanley, utility International Power and tidal technology firm Atlantis Resources Corporation, will install the 86-megawatt (MW) tidal array in stages, starting with a 9 MW demonstration project.
"When fully operational, the 86 megawatt array could generate enough electricity to power the equivalent of 42,000 homes - around 40 per cent of homes in the Highlands," said Fergus Ewing, Scotland's energy minister.
"This exciting development in the waters around Orkney is just the first phase for a site that could eventually yield up to 398 MW," he added.
Due to the strength and speed of its tides, the firth was once called the "Saudi Arabia of tidal power" by Scotland's First Minster Alex Salmond.
However, research in July showed that the proposed tidal turbines in Pentland Firth would generate much less power than previously estimated.
The University of Oxford said the maximum that Pentland Firth could produce would be 1.9 gigawatts, with 1 GW a more realistic target - far below previous estimates of 10-20 GW.
The Scottish government also said on Monday that tidal power developers Aquamarine Power Limited and Pelamis Wave Power will share 13 million pounds ($20.6 million)of funding from the Scottish government's marine renewables commercialisation fund.
This will enable the firms to develop their technologies so they can successfully deploy the first wave arrays.