Volvo has announced a new partnership with Swedish energy company Vattenfall that will see the automaker producing plug-in hybrid vehicles by 2012. Volvo first inked a joint venture with Vattenfall in January 2007 to explore the possibilities of plug-in technology, but will now move forward with a full-scale launch.

Unlike any hybrid currently offered, Volvo’s first plug-in hybrid will use a diesel engine. That efficient powertrain combo is expected to reduce Volvo’s overall environmental impact, as well as keep fueling costs at a minimum for consumers.

Volvo will use lithium-ion batteries in its plug-in hybrid vehicles, with a charge time of five hours from a standard household outlet.

“We are investing in an industrial joint venture to series-produce plug-in hybrid cars in Sweden in 2012, cars that can be powered by both electricity and diesel,” Stephen Odell, President and CEO of Volvo, said in a statement. “This is an important business development for us and our partnership with Vattenfall allows us to take a giant step toward offering our customers cars with an even smaller environmental footprint.”

Per the terms of the joint venture, Volvo will work on the development of the plug-in hybrid vehicles while Vattenfall takes care of the charging infrastructure, which includes quick charge technology. Volvo will launch three V70 plug-in test vehicles this summer before entering like-models into production in 2012.

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