A hydro-electric scheme which once powered Chagford's street lights may be brought back into use to play its part in combatting global warming.

The power station – the smallest to supply the national grid – was installed in 1891 and ran until the 1980s. Now Chagford's community environmental group want owner South West Water to sell, lease or better still, give it the power station to run as a community project. Perran Newman, chairman of Chagford Action for Sustainable Energy, said he suspects that SWW is in a quandary about to what to do with the thing and de-commissioned it because of its size.

Small it may be, but it can produce a steady 20 kilowatts of electricity a day, enough to power 40 houses. With climate change at the top of the agenda and the pressure on to find alternatives to fossil fuels, Mr Perrin, an engineer, hopes that little Chagford power station may start producing electricity once more. 'If they could lease it at a peppercorn rent, that is the sort of thing we would like. It's the biggest single thing we could do to try to offset our energy consumption,' he said.

'Chagford was an early pioneer. It was the third town in the south west to have its own electricity supply. There are some fascinating pieces in the Exeter Flying Post of people marvelling at it,' said Mr Newman. Now it has the chance to be a pioneer again, which is why he is so keen that this should be a community-owned project.

The aim would be to sell the electricity to the national grid. Renewable energy enjoys a premium and would bring in an estimated income of £7,000 a year, a useful sum which could seedcorn other renewable energy initiatives in the town.

'There are probably some very good grants you can get for community-owned projects. Once a power station like that is running only simple maintenance is required. It's quite within the capability of unskilled people. 'Just up the road from it is a private power station on the River Teign supplying a house which has been running for 15 years and is very reliable.'

Mr Newman first contacted SWW with the proposal three years ago but was told they could not enter negotiations because Plymouth University was using the site to experiment on a new sort of turbine. The university has now pulled out and Mr Perrin is hoping SWW will reconsider his plan.

'We want to know in the medium term whether they are likely to dispose of it so we can get our act together – it's not a trivial undertaking.' To start with the group may need a licence from the National Rivers Authority to abstract water. Mr Newman says that when Castle Drogo made a similar application it was quoted £25,000.

'That's nonsense. But if anyone can do something the National Trust can – they can bring big guns to bear.' Mr Newman hopes that a licence will not be needed. Unlike Castle Drogo, the leat at Chagford's power station has never stopped flowing.

Early estimates suggest that the scheme could cost £100,000 to get up and running – a lot of grant applications. Mr Perrin also hopes private investors might step in, attracted by potential dividends. Mr Newman already has his eye on the next scheme if this one is a success. Further down the Teign is an old woollen factory which once had its own water wheel. The building is in private hands and the water wheel has gone, but the leat is still there and if agreement can be got from the new owner, it is just asking for another small-scale hydro scheme.