Welsh Power in collaboration with Quinbrook Infrastructure Partners will install a synchronous condenser and flywheel at its site at Rassau in Ebbw Vale to help balance the grid.
Welsh Power was awarded a contract to provide stability services to the National Grid ESO earlier this year and expects the new plant to be operational by autumn 2021.
Site clearance work started last week.
The system works by providing inertia to balance the grid and will also provide reactive power for voltage control, in south western Wales.
Welsh Power said the project is “groundbreaking” for Wales and the UK because it uses innovative technology and local contractors and specialists.
The technology will stabilise the operation of the power grid which in turn will allow more renewable electricity to be used on the network.
Historically, grid stability had been maintained by large, predominantly fossil fuel power plants with large, spinning synchronous generators.
As these plants retire and are replaced by non-synchronous, zero-emission renewable generation, the job of maintaining grid stability has become more challenging for the National Grid Electricity ESO.
This new technology forms a “world first” approach to managing grid stability.
Welsh Power grid services director Chris Wickins said: “This is a major milestone for UK grid stability and the result of a fantastic collaboration between Welsh Power, Quinbrook, National Grid ESO, Siemens and Western Power Distribution.
“Within 15 minutes of an instruction, our facility can provide approximately one per cent of the inertia needed to operate the grid safely - with zero emissions.
“This will support the growth of UK renewable energy and contribute to the UK’s progress towards its net-zero targets.”