Vegetable scraps, meat off-cuts, old bread and other food waste will be used by Sydney Water to power one of its sewage treatment plants.

The waste from local businesses is liquefied in a giant blender-like machine, before being trucked to the Cronulla wastewater treatment plant.

The waste is then 'digested' by a machine which produces methane gas.

The gas is then fed to an engine which produces electricity.

Sydney Water's principal analyst of Eco Efficiency Phil Woods said food waste and sewage sludge was helping reduce the plant's power bill.

"We're powering just over 60 per cent of the plant's energy demand through the biogas," he said.

As part of a three-year trial, 150,000 wheelie bins of food waste will be collected from local businesses.

Tony Manno, who runs the Cronulla Fruit Fair, now liquefies fruit and vegetable waste onsite, instead of sending it to landfill.

"Before, we used to have the garbage bin coming in to pick it up two or three times a week," he said.

"The costs of the tip are just so expensive ... so now this way it's going to get put to good use."

NSW Water Minister Niall Blair said the Government would closely monitor the results of the trial.

"This is something that is a great initiative that we think could be rolled out well and truly into the future across the network," he said.

PHOTO: Fruit shop manager Tony Manno liquefies waste onsite, instead of sending it to landfill. (ABC News: Nick Dole)