A major challenge for the tidal power industry is to minimise adverse environmental impacts that could occur with the extraction of energy from tides; understanding the nature and extent of these impacts is therefore crucial to the development of the sector. The installation of tidal farms with minimal environmental impacts is impossible without understanding the hydrodynamic processes in a coastal zones and how these processes will respond to changes within the environment. This paper describes the incorporation of energy extraction by tidal turbines into a two-way nested hydrodynamic model to investigate the potential environmental impacts resulting from the extraction of energy by a large tidal turbine farm. The model was applied to the Shannon Estuary, located on the west coast of Ireland, which has significant capacity to produce tidal stream energy. The paper describes the two-way nested model and the process by which the mechanics of the energy extraction process was incorporated into the hydrodynamic model. Model results show the potential for significant changes in tidal velocities as a result of energy extraction. Results also show how the use of a highly resolved two-way nested model gives improved prediction accuracy of possible environmental impacts of tidal turbine farms over a lower resolution single grid model.