"It's logged into the national grid, which makes it the world's first commercial wave power project," said Anthony Kennaway, a spokesman for Babcock and Brown investment firm which runs the Agucadoura project in northern Portugal.

This first phase of the project cost about 8.5 million euros (US$12.55 million).

Agucadoura's capacity is a drop in the ocean compared to over 2,000 megawatts in installed wind turbines in the country, while the cost of this energy is way higher than wind or conventional energy sources.

"The price is not competitive at the moment and the project was possible because of the feed-in tariff in Portugal, which basically allows (us) to continue developing the technology ... But we hope that in 15 years wave power will be where wind is now, that is extremely competitive."

"Portugal could be for wave power what Denmark was for wind," Kennaway said.

WAVES OF PORTUGAL

In a sign things may be looking up for wave power, Portugal's main energy company EDP and engineering firm EFACEC each took a 15.4 percent stake in the project. Babcock, which has been trying to sell its European energy assets to boost liquidity, reduced its share to 46.2 percent from 75 percent and Scottish firm Pelamis Wave Power, which makes the wave converters, to 23 percent from 25 percent.

EDP, which is an active player in wind power, Babcock and EFACEC also set up a joint company called "Waves of Portugal" to focus on the development of experimental wave energy projects.

Renewable energy, including water dams, accounts for 40 percent of power consumption in Portugal. Some experts say wave energy could meet up to 20 percent of the country's needs in the future.

Feed-in tariffs provide long-term incentives to invest in renewable energy. Under this system used in many countries national power utilities are ordered by governments to buy, or feed in, from renewable energy sources at above market rates. These rates vary depending on the capital cost and commercial maturity of each technology. The Agucadoura project is supported by a specific feed-in tariff equivalent to approximately 0.23 euros per kWh.

A total of 25 semi-submerged "sea-snakes" should be installed in the next few years, boosting the wave park capacity to 21 MW, Kennaway said. The machines, each 140 meters (yards) long and 3.5 meters in diameter, are positioned head-on towards the waves so that its sections move with the waves.

Each joint of the Pelamis contains a hydraulic pump, which pumps high-pressure liquid through motors that in their turn drive power generators. The energy is then transmitted to a substation on shore via subsea cables.

(Reporting by Andrei Khalip; editing by Christopher Johnson)