The £70million facility in Beckton, East London, will be funded by a consortium led by iCON, along with EEA and 2OC.
The CHP plant will be integrated with National Grid’s gas pressure reduction station, and will be in close proximity to Thames Water’s desalination plant and sewerage treatment works.
The facility is expected to be fully operational in the first quarter of 2015.
Piers Clark, commercial director for Thames Water, said: “Our support of this project further underscores our commitment to delivering critical services to the community of London in an environmentally responsible manner.”