The deal marks one of the first projects in Australia to generate revenue from the underground coal gasification process.

The contract is for electricity produced at Carbon Energy`s 5-megawatt syngas-powered electricity production facility currently being constructed at Bloodwood Creek in the Surat Basin.

The facility has the capacity to supply about 4000 homes per annum, with the first electricity expected to flow into the grid by the end of 2009.

The contract follows the success of Carbon Energy’s world-first trial of UCG technology developed in conjunction with CSIRO.

“The establishment of the 5MW station is a major step towards full commercial production,” Carbon Energy managing director Andrew Dash said.

“However, it`s really only the first step. We intend to move forward quickly with plans for an additional 20MW power station at the Bloodwood Creek location in 2010.

“We see the 5MW as a proof of concept for power generation and the experience gained will assist with the planned 20MW expansion.

“Importantly, our plans for the 20MW station will allow Carbon Energy to demonstrate carbon capture and potentially carbon storage.”

Carbon Energy’s vision for regional southeast Queensland is to build a large-scale, low-emission, power-generation plant, plus a gas processing facility to produce synthetic natural gas and chemicals, such as ammonia, as well as transport fuels.

Dash said the company would use its experience from the delivery of the planned 5MW and 20MW stations in Queensland for future projects both in Australia and in key markets overseas, such as the United States.

Carbon Energy was trading up 1.1% this morning at 47c.