The Greeley Tribune reported that the plant will produce enough power for about 1,000 homes in an agreement with the Poudre Valley Rural Electric Association.
The Northern Colorado Water Conservancy District will own and operate the $6 million project. The district owns Carter Lake, one of the reservoirs that delivers water to communities and farms on the eastern plains.
Poudre Valley REA officials say the project shows their commitment to pursuing renewable energy resources. The REA has more than 35,500 customers in Weld, Larimer and Boulder counties.
The plant will produce 7 to 10 million kilowatt hours of energy with its completion in mid-2012.