The facility, which is part of a 10-year agreement between Genalta Power and Shell Canada, will have the capacity to generate up to four megawatts of power, the equivalent of enough to power 4,800 homes.
The electricity will be produced with gas from Shell's facilities in Peace River, Alta., and sold on the power grid, Genalta Power said in a statement.
As part of the project, Shell will construct a pipeline to transport the gas from its Cliffdale oilsands development to the new Genalta facility.
"Genalta is excited to be working together with Shell to create a produced-gas-to-power project," Genalta CEO Graham Illingworth said in a release.
"The cost of power is on the rise and the opportunity for Genalta and Shell to create environmentally friendly power using produced gas is mutually beneficial."