The feasibility and practicality of the process will be reviewed amid delays to the £1 billion Swansea Bay Tidal Lagoon project.
Supporters of the project have warned the scheme could be at risk unless a subsidy level is agreed in a matter of weeks.
In addition, Prime Minister David Cameron said his enthusiasm for tidal energy was 'reducing'.
The review will examine tidal lagoon technology to understand how it can contribute towards the future energy needs of the UK.
It is expected Tidal Lagoon Power, the proposed developers of Swansea Bay Tidal Lagoon, and other industry stakeholders will take part in the review while discussions about Swansea Bay Tidal Lagoon continue.
The review, which is to begin in spring, will consider:
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• An assessment of whether, and in what circumstances, tidal lagoons could play a cost effective role as part of the UK energy mix
• The potential scale of opportunity in the UK and internationally, including supply chain opportunities
• A range of possible structures for financing tidal lagoons
• Different sizes of projects as the first of a kind
• Whether a competitive framework could be put in place for the delivery of tidal lagoon projects.
Energy Minister Lord Bourne said: "Tidal Lagoons on this scale are an exciting, but as yet an untested technology. I want to better understand whether tidal lagoons can be cost effective, and what their impact on bills will be - both today and in the longer term.
"This review will help give us that clarity so we can determine what role tidal lagoons could have as part of our plans to provide secure, clean and affordable energy for families and businesses across the country."
Mark Shorrock, chief executive of Tidal Lagoon Swansea Bay, welcomed the ministers' decision.
"This is a huge step from the UK Government and a clear signal that it sees potential advantage for the UK energy consumer in very long-dated tidal energy infrastructure assets," he said.
"It is imperative that we conclude our structuring and commercial negotiation with Government within the next 6 weeks. This is entirely possible; the review should not impact the finalisation of our commercial discussions. To unlock the potential of tidal lagoon power, we need investment in a demonstration project that will grow the supply chain and build investor confidence that an exceptionally long term project can go forward in today’s UK electricity market."
(LM/MH)
