Alauna Renewable Energy has agreed a 20-year deal to build and operate an anaerobic digestion plant for City of Edinburgh and Midlothian Councils.
The joint venture between Kelda Water Services and Scottish Water Horizons was named preferred bidder for the contract last year.
Construction of the facility is expected to begin next year ahead of a scheduled opening date in 2015.
Edinburgh City Council environment vice convener Councillor Jim Orr said: “This facility will play a central role in our ongoing plans to reduce landfill disposal and increase recycling.
“A staggering one third of the rubbish in our bins at home is made of food waste, and the introduction of food waste recycling in Edinburgh last year has already led to a drop in the amount of waste being buried in the ground. I look forward to working with ARE and Midlothian Council on this exciting project.”
ARE managing director Peter Sharpe said: “We are delighted to have been appointed to deliver such an innovative project that will make a significant contribution to the sustainability of the local communities and environment.
“We’ve been working hard with the councils to finalise the contract details and we are pleased that these are now all agreed and we can look forward to helping realise their aspirations.”