The Balmenach Distillery in Speyside, north-eastern Scotland, is receiving finance from the Green Investment Bank (GIB) to install the technology, which will replace the polluting heavy fuel oil boiler currently used at the plant.
It is the third Scottish distillery to benefit from a £5 million funding pot for energy efficiency in distilleries from the Green Investment Bank and the private sector, with each project getting between £1 million and £1.5 million funding.
Tomatin Distillery near Inverness and Aberfeldy Distillery in Perthshire have already received backing for installing biomass boilers, and Tomatin Distillery has reduced its greenhouse gas emissions by around four-fifths and slashed its fuel costs.
As the Balmenach Distillery is in a remote part of the Highlands it is off the grid and reliant on heavy fuel oil to meet its energy needs.
The new boiler, used to produce the steam needed for the whisky production processes, will reduce energy costs by almost a third and cut greenhouse gas emissions by 5,000 tonnes a year, the equivalent of taking 2,200 cars off the road, the GIB said.
It will use wood pellets sourced from local, sustainably managed forests and manufactured at Invergordon by the boiler's operator Balcas.
The distillery, which has also put capital into installing the green infrastructure, will pay back the investment from the savings it will make on its energy use.
Balmenach Distillery dates back to 1824, making it one of the oldest in Speyside, and after closing in 1993 it was bought in 1998 by Inver House Distillers Group which is owned by Asian drinks business ThaiBev. It also produces premium gin Caorunn.
Rob Cormie, group operations director at the UK Green Investment Bank, said: "I am very pleased that we have been able to make another investment at a Scottish distillery, just a few weeks after we announced that we were making £5 million available to fund these investments.
"Projects like this provide a sustainable supply of renewable energy and save distilleries money and reduce their greenhouse gas emissions.
"With limited capital investment, distilleries can save money from day one whilst also helping to meet the industry's ambitious green targets."
Highland MP Danny Alexander said: "This latest investment will give a welcome boost to our most important export industry.
"With continued investment in Highland distillers we can ensure that while the quality of the product remains high, the carbon footprint of production is low."