German engineering conglomerate Siemens has selected Associated British Port's (ABP) Hull development to build what will be Britain's first major offshore wind turbine manufacturing plant.

The decision means that ABP is in line to receive about £20m for the development from the government's ports upgrade fund, which energy secretary Chris Huhne fought to save from the spending cuts in October's comprehensive spending review. Siemens' proposed plant will also create about 700 jobs and the news will be a boost for Hull, which has beaten off competition from ports in Teesside, Sunderland and the Humber which had also been shortlisted for the project.

Siemens will announce today that it has signed a memorandum of understanding with ABP over its Green Port Hull proposed development at Alexandria Dock. The two companies have yet to sign a formal binding contract.

Under the plan, ABP would build a £100m deepwater berth at the port capable of handling the new generation of large offshore wind turbines. It would be one of the biggest single investments ABP has made in Britain. Siemens also wants to build a new £80m wind turbine plant on the site.

The two companies hope to sign definitive agreements this year. Siemens, together with General Electric and Mitsubishi, which also plans to build similar plants in Britain, had threatened to go elsewhere if the £60m ports funding had been withdrawn. It is understood that Siemens was looking at alternative sites in western Denmark to build a plant to make turbines for the North Sea.The two companies will work to develop the plans for the new Siemens plant and export facility at the Port.

The news from Siemens and ABP will also be a shot in the arm for the government's attempts to create new jobs from the "green economy", particularly from the manufacturing of wind turbines, which are being rapidly installed off the British coast.

Industry sources estimate that the proportion of UK-sourced components in onshore wind farms is as low as 6%, with companies bemoaning the missed opportunity for British manufacturers and the wider economy as vast sums are now being spent on renewable energy.

Some government advisers believe the state could do more to promote British turbine manufacturers, for example by introducing specifications for UK wind farms that would benefit domestic firms.