Costain will be lead contractor on the programme to invest £45m in its Wanlip plant to the north of Leicester.
Severn Trent project manager Dale Collison said: “We can generate a form of clean energy by harnessing the methane that is created when sewage sludge breaks down, and we have been required by Ofwat to do this at more of our sites by 2015.
“The replacement of the old Wanlip digestion plant is key to Severn Trent Water’s strategy for efficiently dealing with sewage sludge and optimising renewable gas production in the eastern region.”
About £30m will be invested in renewable energy, including a 130m tall wind turbine, and around £15m will be invested in a new inlet works over three years.
A planning application will be submitted in late May or early June this year.