A new landfill gas-to-energy station at the Mugga Lane tip will allow more methane to be captured and turned into electricity, with the potential to power more than 1000 extra homes each year.
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The ACT government has appointed Queensland-based company LGI Limited to operate the new facility on a 15-year contract.
The station will include at least four power generators, each with the capacity of producing 1.06 megawatts each hour, but more could be installed if the amount of gas produced in landfill warrants it.
The existing landfill gas-to-energy station at Mugga Lane, which is set to be decommissioned, is operated by EDL Energy. A spokeswoman for EGL Energy said the current facility generated enough power in 2018-19 to power 4181 homes.
Minister for Recycling and Waste Reduction Chris Steel said the new contract with LGI Limited would result in an estimated 34,900 megawatt hours being captured each year, providing enough power for 5370 homes.
"Methane gas is generated when organic waste in landfill decomposes," Mr Steel said.
"If properly managed, gas can be extracted and used to generate electricity, significantly reducing greenhouse gas emissions at the same time."
The ACT government has been capturing methane emissions from landfill since 1997.
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The West Belconnen landfill facility, where the remains of many former Mr Fluffy houses were dumped, is scheduled to close by 2021.
Mr Steel said the new contract with LGI Limited also meant the company would install an enclosed flare at West Belconnen.
The flare was intended to manage the safe destruction of gas on-site, because the volumes generated there were not enough to provide commercially viable quantities for sale.
There were 256,276 tonnes of waste sent to landfill at Mugga Lane and West Belconnen in 2018-19.
The annual figure is decreasing, having dropped from 511,291 tonnes in 2016-17 and 340,931 tonnes in 2017-18. The slow-down in Mr Fluffy demolitions is largely responsible for the decrease.
Mr Steel, who was recently handed the newly created recycling and waste reduction portfolio, signalled his intention in an interview with the Sunday Canberra Times three weeks ago to cut down on the amount of material being sent to landfill by targeting food scraps.
"Around one-third of material in ACT household rubbish bins is food and garden waste," he said.
"The ACT government is planning for a food organics collection service to divert this waste from landfill and instead turn it into valuable organic compost products."
