Welsh First Minister Mark Drakeford has announced £750,000 for the Tidal Lagoon Challenge.
The money will be available for at least three research projects focusing on the deployment of tidal lagoon technology.
The research will help address the barriers that have prevented the development of the technology and give more insight into the benefits it could bring to Wales, he said.
The work will advance the future development of a tidal lagoon project in Welsh waters.
Drakeford said: “Our ambition is to make Wales a world centre for emerging tidal technology.
“We cannot deliver this by ourselves. We need to work in partnership with the industry to build the right environment for the sector to flourish.
“The research will make a significant contribution to delivering a future tidal lagoon project in Wales and move the sector forward as a whole.”
A tidal lagoon is a power station that generates electricity from the natural rise and fall of the tides.
A large volume of water is captured behind a man-made structure which is then released to drive turbines and generate electricity.
As the tides rise and fall, with no requirement for fuel, tidal power is truly renewable and unlike other forms of renewable energy, is entirely predictable.
The Tidal Range Alliance is a group that brings together developers, companies, and supply chain businesses involved in tidal range energy projects in the UK and overseas.
Ioan Jenkins, chair of the Tidal Range Alliance added: “The Tidal Range Alliance is pleased the Welsh Government remains committed to delivering tidal range and ensuring this vital technology delivers secure, renewable power, as well as jobs and investment for Wales and the UK.
“The technology has already been proven at scale and this research will help provide the evidence that will unlock the first wave of tidal range projects, here in Wales.”