Once operational, the 270km Fortescue River Gas Pipeline is expected to save FMG about $A22.45 million a year, significantly cutting energy costs and carbon emissions.
As it stands, the 125 megawatt Solomon Power Station runs on diesel, but the plant will be converted to gas as part of the new development.
Fortescue has secured foundation shipper rights under the gas transportation agreement, which provides the flexibility to increase gas volumes.
The initial contract for gas supply will last 20 years, and the pipeline is expected to be operational by early 2015.
Construction is scheduled to start in July and be complete around the end of the year.
The development will be the longest gas pipeline built in WA during the past 10 years.
"The pipeline to Solomon allows Fortescue to reduce operating costs and play a significant role in cutting emissions by switching stationary power generation from diesel to clean natural gas," Fortescue CEO Nev Power said.
"The pipeline also represents a significant step in the gasification of the East Pilbara to the lasting benefit of Western Australia."
TransAlta is an existing partner of Fortescue's, and bought the miner's Solomon Power Station in 2012 for $356.98 million.
The company holds a 43% stake in the joint venture, and will carry out the work through its wholly-owned subsidiary TEC Pilbara.
DUET owns the remaining 57% of the project, and will carry out work through its wholly-owned subsidiary DBP Development Group.
To fund its participation DUET has launched a fully-underwritten placement to institutional investors, with the aim of raising around $100 million.
The development has also seen Monadelphous sign a $100 million contract with the joint-venture to help construction of the pipeline.
"Following the recent award of the Wheatstone Ashburton West Pipeline contract, we are pleased to continue our relationship with DBP on the construction of another important gas pipeline in WA," Monadelphous managing director Rob Velletri said.
