India's state-controlled Bharat Heavy Electricals and Andhra Pradesh Power Generation, also government-owned, have signed an agreement to set up a 125 megawatt clean coal power plant.

The power plant will be sited in Vijaywada, the third largest city in the southern state of Andhra Pradesh, and use integrated gasification combined cycle, or IGCC, technology.

The government said Bharat Heavy Electricals has been running a 6 MW pilot IGCC plant in Tamil Nadu since 1983, which is now being scaled up to commercial size.

The Vijaywada plant is expected to use high ash Indian coals as a feedstock.

The government said the new facility would cost around Rs950 crores, of which roughly Rs420 crores will come from Bharat and Rs530 crores from Andhra Pradesh Power Generation.

IGCC produces significantly less greenhouse gases than traditional coal-fired plants, according to the government, and has an operating efficiency of around 40 percent.

The government said IGCC also reduces water consumption by about 40 percent and has lower solid waste production.

The project is scheduled for commissioning in mid-2011.