Worth $8 million, the proposed wind farm would comprise two wind turbines and be built on private farmland at Leonards Hill.

The Hepburn Renewable Energy Association described the $975,000 grant as an "important milestone" which would help determine whether the community wanted the wind farm.

HREA president Per Bernard welcomed the news, but said it was only one step in the process.

"We must lodge a planning application to council soon and allow the community and council to decide," he said.

HREA has attracted 320 members, and has been working with Future Energy for the past 18 months on the project.

Future Energy managing director David Shapero said community-owned wind farms were a feature of the European renewable energy landscape.

"It was the European model that we followed. While the idea may be new in Australia, we have a proven model which has been both successful and acceptable to communities," he said.

The wind park would be run by a cooperative.

The cooperative would get the revenue from energy sales and pay dividends to the members and a community fund.

Ballarat East MLA Geoff Howard said the project would lead the way in supporting appropriate wind energy development and provide a powerful demonstration model for other communities to follow.

Independent MP Dianne Hadden said the Leonards Hill community had approached her for advice about the implications of the proposed wind farm. She said there were serious issues to consider including fire, noise, shadow flicker, and a threat to flora

and fauna.

Ms Hadden said the government could have better spent the money on roads and bridges in the Hepburn Shire.

"This is Geoff Howard desperately getting the Greens vote," she said.

HREA treasurer Allan Meers said the grant would increase the returns to the community.

HREA committee member Denise Dalton said the community had been involved through every stage of the project.