This would significantly reduce carbon emissions and improve energy efficiency at the Yorkshire Water wastewater treatment works, the companies said.
The pair are also considering investing in carbon capture and storage at Yorkshire Water’s site which they said can substantially reduce the greenhouse gases produced by E.On’s biomass plant being released into the atmosphere.
Simon Duncan, a commercial director at E.On, said: “We need to find new, cleaner ways of heating our homes and businesses, and heat networks like ours in the Lower Don Valley allow us to do just that.”
He said E.On hopes to expand its district heat network to help Sheffield reach its goal of becoming a zero-carbon city by 2030.
Mr Duncan added: “Expanding our network and connecting a wider variety of locally available heat sources is part of a plan to create a more secure, more sustainable and more affordable energy source for the city – potentially building a model that can be replicated around the country.”
Sheffield is one of the seven sites picked by the Government – along with Leeds, Plymouth, Bristol, Stockport and two in London – to create heat zones where excess or unused heat from data centres and factories will be pumped into thousands of homes.
It is more efficient and cheaper to heat urban areas from a central source rather than using individual boilers in each property. Heat networks currently provide 3pc of Britain’s heating demands, which could rise to 20pc by 2050 as part of net zero efforts.
Partnering the two sites would support E.On’s multimillion-pound investment plans to more than double the size of its Lower Don Valley heat network.
E.On and Yorkshire Water also agreed to explore ways of decarbonising the energy needs of other Yorkshire Water operations in the wider Sheffield region.
Nicola Shaw, chief executive of Yorkshire Water, added: “It helps us because E.On are creating heat which goes into a district heat network and we can also work together on how we supply Sheffield and the way we work with our underground networks across the city, taking out disruption from people’s everyday lives.”