The development of the cars, which will be powered by electricity and diesel, is being jointly financed by both companies. Volvo will manufacture the cars and Vattenfall will develop charging systems and supply the cars with electricity.
The companies say that, although the cost of the plug-in hybrids will be higher than that of cars using conventional technology, when the car runs on electricity, its fuel costs will be cut to roughly one-third that of diesel.
The plug-in hybrids will be driven by an electric motor fuelled by a lithium-ion battery. The battery will take about five hours to charge from a standard wall socket, and can also be charged through regenerative braking when the car is on the road.
As part of the deal, Vattenfall will offer customers the opportunity to sign an agreement for renewable electricity sourced specifically from wind power or hydropower, as an alternative to the regular mix of electricity sources.
This summer, the companies plan to launch three Volvo V70 demonstration cars based on hybrid technology to gain customer feedback.