Prosiect Gwyrdd is to receive a total of £105 million from the Welsh Government to divert its residual waste from landfill.
The scheme, which provides waste services for Caerphilly, Cardiff, Monmouthshire, Newport and the Vale of Glamorgan, will get £4.2 million each year from the Welsh Government over the lifetime of the 25-year contract.
This funding will be used towards financing the 30MW energy from waste plant at Trident Park in Cardiff.
Viridor was appointed as preferred bidder to build and operate the plant in March this year.
Welsh Minister for Natural Resources Alun Davies said: “At a time when councils across Wales are facing an unprecedentedly difficult financial climate and working to improve services with reduced resources, this facility will help councils in south east Wales save money, which can instead be spent on our schools, libraries and roads. Sending waste to landfill is literally throwing money away.
“We are working hard to ensure that we prevent, minimise, reuse or recycle as much of our waste as possible. However, for the waste left over, it is far better to use it to create energy that can power our homes and businesses than to bury it in the ground.
“Sending our waste to landfill and leaving it to rot is no longer an option – it uses up our land and damages our environment. As well as creating jobs in the waste and resource management industry and saving our councils money, Prosiect Gwyrrd will cut Wales’ carbon emissions and help reduce climate change.”