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The money has been awarded to the city council to restore and reopen the B-listed Granton gasholder.
It comes directly from the UK Government’s Levelling Up Fund and is intended to help to help revitalise the wider Granton waterfront by securing further public and private sector investment.
The council has an ambitious £1.3 billion Waterfront regeneration masterplan, which is expected to see thousands of much-needed new homes, as well as retail and cultural offerings built over the next 15 years.
The historic gasholder, which dates back to 1898 and was used to store natural gas, was given B-listed status by Historic Scotland in 2000.
A bid by the National Grid to demolish the 140ft structure was refused by the Scottish Government in 2012.
Four similar structures in Vienna, built in 1899, have been revitalised as music venues, while in Dublin an old gasholder was converted to stunning residential flats.
Edinburgh’s planning convener Neil Gardiner has said Granton is set to become one of the most sustainable new neighbourhoods in Scotland with 3,500 net zero carbon homes, as well as a primary school, health centre, commercial and cultural spaces, sustainable transport provision and a new coastal park.
The project recently took a major step forward when the Outline Business Case to develop plans for a first phase of regeneration in the area was agreed.
The council says it is pressing ahead with the delivery of around 660 council-led homes and there has been positive progress in growing a cultural and arts cluster.
A vacant industrial unit on Granton’s West Shore Road is to be transformed into a vibrant creative and community hub by arts charity Edinburgh Palette.
And the refurbished Granton station will house artists' studios.
Depute council leader Cammy Day, who also represents the area, said: “This funding is very welcome and demonstrates the momentum and progress we’re making to transform used brownfield land into a new sustainable new neighbourhood its residents will be proud of.
"It will be one where people live in affordable environmentally friendly homes, have excellent transport and active travel links and access to lots of open and green space, arts, sports and culture.
"In a partnership with Edinburgh College, we’ve already made sure the gas holder is a beacon of light for the area by lighting it up while work is underway on the wider regeneration of the area.”
Lothian Tory MSP Miles Briggs welcomed the announcement as a “major investment for the wider Edinburgh region”.
He said: “Rishi Sunak has delivered a major investment for the wider Edinburgh region.
“This £16 million will not only restore the historic B-listed Granton gas holder, it will also kickstart the Granton Waterfront regeneration.
“This is an ambitious urban development project, which will deliver sustainable economic growth and jobs in the Edinburgh area.
“With the UK Treasury now delivering this funding, this project can get off to a flying start and start benefiting local communities.
“This investment shows how the UK Government is driving economic growth, here in Edinburgh, and right across Scotland.”