The 86MW Pentland Firth Inner Sound tidal energy project is being developed by MeyGen Ltd, a joint venture between investment bank Morgan Stanley (45%), French-owned power generator International Power (45%) and tidal technology firm Atlantis Resources Corporation (10%).
Permission has been given to install the tidal array in stages, beginning with a 9MW demonstration project of up to six turbines.
MeyGen won the rights to the scheme from the Crown Estate in 2010 with a 25-year operating lease.
Energy minister Fergus Ewing said: “Today, we have granted consent to MeyGen Ltd to develop the largest tidal turbine array in Europe and the first commercial project off these shores.
“This is a major step forward for Scotland’s marine renewable energy industry. When fully operational, the 86MW array could generate enough electricity to power the equivalent of 42,000 homes – around 40% of homes in the Highlands.
“This exciting development in the waters around Orkney is just the first phase for a site that could eventually yield up 398MW.”