Around £120 million of private capital is set to be invested in the venture over the course of the next three years.
The initiative will see the construction of 25 small-scale hydro-electric generators which will create enough electricity to power around 40,000 homes.
Commenting on the initiative, energy and climate change secretary Ed Miliband said: "By committing to build small hydro power stations and wind turbines, British Waterways is playing an important role in generating renewable energy from the UKs natural resources."
Meanwhile, Kendal firm Hydro Technology is investigating the possibility of installing hydro-electricity generators in the Lake District.
According to Fleetwood Weekly News, the Lake District National Park authority has said there are "huge possibilities" for the area.
Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.