The project aims to use the River Dane to produce 'greener' electricity and help reduce the town's carbon footprint.
Dane Valley Renewable Energy Projects (DVREP) – a part of the Cheshire East Council-backed Congleton Partnership – successfully bid for the EU money via the North West Regional Development Agency.
It will build the micro hydro-electric generation scheme at the Old Weir in Congleton Park.
It is a modern twist on the town's industrial heritage, which was based on the use of water power to drive silk mills.
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DVREP plans to form a community-owned provident society to own hydro-electric schemes to generate electricty and money for energy-efficiency grants in the town.
Councillor Jamie Macrae, Cabinet portfolio holder with responsibility for prosperity, said: "This is great achievement for everyone involved in this innovative scheme and I am absolutely delighted.
"I am proud that Cheshire East Council has been so actively involved in this and has such a successful working relationship with all parties.
"Due to increased energy demands, requirements to mitigate and adapt to climate change and government targets to reduce greenhouse gas emissions, it is important and necessary to revisit the potential of Cheshire East's ability to harness energy from its water resources."
The estimated £15,000 to £20,000-a-year profits from selling the electricity will be used for energy-saving initiatives, such as home insulation, to reduce further electricity demand and cut carbon emissions.
The total cost of the project is £400,000, with £150,000 previously committed from other sources.
(CD)
