A £1bn wind farm project on Shetland which could provide power for one-quarter of Scotland's homes took a step nearer yesterday.

The 200-turbine farm producing 600 megawatts would be twice the size of any wind farm project approved in the UK so far and would be the most productive in the world.

It would also be one of the largest community wind farms in the world, generating around £20m a year for the people of Shetland.

It is dependent on planning approval and the construction of a sub-sea cable between Shetland and the mainland of Scotland.

Yesterday an agreement was signed between Viking Energy - the company established to represent the Shetland Community's interests - and Scottish and Southern Energy (SSE).

The agreement creates a single business entity from the two parallel 300MW wind farm development projects proposed by Viking and SSE for Shetland's central mainland.

Combining their proposals will enable the two organisations to manage all of the issues surrounding the development, such as environmental assessment, as part of a single project.

The anticipated £1bn cost is evenly split between the farm straddling the main North Nestings road 25km north of Lerwick and the undersea cable.

Shetland is the windiest part of the UK which is, in turn, the windiest country in Europe. A wind farm on the islands could be expected to have a load factor of up to 50%, meaning it would produce electricity at close to its maximum capacity for around half of the time.

This would make it the most productive wind farm in Europe, if not the world.

At present, the Shetland electricity system is not connected to the electricity network on the mainland. The islands are supplied by a 67MW power station at Lerwick, built 54 years ago, and by electricity generated at the Sullom Voe oil terminal and existing Burradale wind farm.

The provision of an undersea cable by Scottish Hydro-Electric Transmission, also a subsidiary of SSE, requires Ofgem to approve the necessary investment.

Drew Ratter, chairman of Viking Energy, said: "While climate change, global warming and issues of energy security set the backdrop for this industry, the Viking Energy Partnership will sit at the forefront of new energy projects.

"Shetland has the best natural energy resources in the world and it is important these are developed in a way that leaves a significant financial and environmental legacy for generations to come."