Plans involve installing a new energy efficient biomass heating system to replace storage heaters for the tower blocks in Knowsley.
Each biomass energy unit, one 500kW and the other 300kW, will provide heat for 450 units in the area.
Supported by payments through the Government's Renewable Heating Incentive (RHI scheme, the project is expected to reduce CO2 emissions by 22,200 tonnes over the system's lifetime.
Paul McCarren, energy director of Forrest, said: "More housing associations are considering biomass to improve the value of their properties, become more sustainable and help their customers with rising energy bills.
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"We're now able to deliver biomass on larger scales, which makes it perfect for providing renewable energy to local communities and passing on savings to tenants. As such, we expect biomass to be a growth area for us as housing associations, and larger commercial organisations, continue to make renewables a big part of their property portfolios."
Paul Carhart, MD of Villages HA, said: "By using clean technology to ensure all homes within the tower blocks are environmentally friendly, we are creating an innovative solution that alleviates fuel poverty through reduced bills whilst also ensuring that our residents' health is improved through warmer homes."
Villages is also seeking to improve parking at the tower blocks site, as well as upgrading existing security measures and installing a new CCTV system.
Services including recycling facilities and communal storage are also set to be delivered as part of the investment.
Work on the project is already underway and due for completion in September 2016.
(LM)
