UK Coal and Scottish and Southern Energy (SSE) have signed a deal which will see the former supply SSE's Ferrybridge power station with fuel.
The recent installation of flue gas desulphurisation technology at the plant will allow it to burn British coal, which generally contains more sulphur.
Ian Marchant chief executive officer of SSE said: "With its higher sulphur content, the UK's coal has previously been unsuitable for use in SSE's power generation plants.
"Our investment in equipment to remove emissions of sulphur means we can now make this substantial commitment to an indigenous source of fuel."
He added that SSE plans to reduce its "carbon intensity" by 50 per cent before the end of 2020 and that the UK's energy security will benefit from the agreement.
Meanwhile, rival energy firm E.ON has committed to spending £6.9 million fitting carbon capture technology at its Kingsnorth power plant.
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