The supermarket is one of a number of investors backing the newly formed business, Tamar Energy, with a collective £65m fund.
The energy company plans to develop a UK network of more than 40 anaerobic digestion (AD) plants, which will generate 100 megawatts of green electricity over the next five years.
Sainsbury's claims to be the leading retailer of AD energy through its services offer.
Its zero-food-waste-to-landfill policy means that all surplus food waste from stores goes either direct to charities, or to AD to generate green energy.
Justin King, Sainsbury's chief executive, said: "We will be working closely with our suppliers to ensure they have access to the new plants to help them reduce the environmental impact of their operations, a key strand of our 20 by 20 Sustainability Plan.
"With the support of our suppliers, we are very confident that this new venture will be a success, helping build Tamar Energy into the UK's leading green energy company."
The project brings together UK and international blue-chip partners and investors, including the Duchy of Cornwall, who will all have a stake in developing the business strategy.