The water company says the technology will see the electricity produced at Minworth Sewage Treatment Works increase by almost a third.
The process works by treating sewage sludge, using heat and pressure to sterilise and shatter the cell structure of the bacteria within.
The treated sludge then undergoes a biodegrading process to turn its solid matter into methane-rich biogas.
The remainder can then be recycled and used as a fertiliser for agricultural land.
By generating renewable energy in this way, Severn Trent says it has been able to reduce costs, helping it keep customer bills down.
It expects the THP installation to be fully operational by 2018.
David Nyul, Project Manager for Severn Trent, said: “Generating clean energy through anaerobic digestion is a real priority for us and we’ve been treating sewage in this way for the last 60 years.
“Across the company we currently generate around 34% of all of the energy we use as a business and the thermal hydrolysis process will move us closer to our target of making that 50% by 2020.”