The UK Green Investment Bank (GIB) has agreed to invest £47m into the 14.85MW Belfast EfW plant, which will be fuelled by feedstock derived from household and commercial waste.
The facility is designed to have the capacity to generate enough power for 14,500 homes.
It will be built alongside Bombardier's wing facility in the city's Harbour Estate and is expected to create approximately 250 construction jobs. Completion is exacted in late 2017.
GIB has made its investment in the plant as part of a joint venture, called Full Circle Generation, with developer RiverRidge Energy, Equitix and P3P Partners.
Bouygues Energies & Services has been awarded a design-build-operate contract.
Northern Ireland Assembly trade minister Jonathan Bell said: "This multi-million pound project is hugely significant, not just for Belfast, but for the Northern Ireland economy as a whole as it will create hundreds of jobs and protect many more. As well as creating 250 construction jobs and 20 full-time posts once the facility is operational, it will also provide a competitive energy source for Bombardier, which is our largest manufacturing employer."