The site at Knottingley, West Yorkshire is to burn fuel from refuse, industrial and commercial waste including wood, said operator Multifuel Energy Ltd.
The Â£300m plant is to create hundreds of jobs over a three-year build and should produce electricity for about 160,000 homes, it said.
The adjoining coal-fired Ferrybridge 'C' plant is to close in March 2016, it was announced in May.
The Secretary of State has granted development consent for the new plant.
Construction is expected to begin in 2016 with about 35 permanent jobs once it is operational.
The power station is expected to produce up to 90MWe of electricity annually by burning 675,000 tonnes of waste that could have ended up in landfill, said Multifuel Energy
It is to be built next to the newly-constructed Ferrybridge Multifuel 1 that stated operations earlier this year.
Multifuel Energy is a joint venture between power company SSE and and waste management company Wheelabrator Technologies.
A second multifuel power station has been approved for Ferrybridge.