The European Investment Bank (EIB) is funding $70 million (£44.1m) to build a transmission line between Tajikistan and Kyrgyzstan.
The 500kV interconnector will be 447km long.
The cash will also be used to finance the extension of three exiting power substations – two in Tajikistan and one in Kyrgyzstan – as well as the construction of a new substation in Tajikistan.
The project aims to improve the conditions for sustainable renewable electricity trade, cut shortages and enhance export revenues in both countries.
Wilhelm Molterer, EIB Vice President, said: “The EIB loan will help improve the reliability and capacity of vital energy infrastructure needed for improving the quality of life of Tajik citizens and for further economic development in the region.
“The new energy infrastructure will foster electricity trade with neighbouring countries and make it possible to attract foreign investors due to safer energy supplies.”
The project is also part of the Central Asia – South Asia Electricity transmission and Trade scheme which covers Tajikistan, Kyrgyzstan, Afghanistan and Pakistan.