The partners plan to conduct a feasibility study in the next few months to look into building a $30 million dual fuel power plant of up to 30 MW at the Bowen Basin, central Queensland, mine.

Initially the plant would be diesel fuelled but is planned to use coal mine methane from mine drainage ahead of mining activities as well as coal seam gas extracted from other coal seams on the mining lease.

Ergon Energy would own and operate the plant and would sell electricity to Peabody while CH4 would provide expertise in gas production and gathering.

Ergon Energy’s executive general manager business development Jim Chisholm said a successful project would provide a breakthrough in the use of embedded generation (power plant built at electricity consumption point) to provide reliable electricity for this and future mine sites.

“This would further enhance Ergon Energy's position as a pioneer in embedded generation in Queensland, its ability to meet gas electricity targets and long term business viability by providing enhanced electricity supply reliability.

The project would potentially be one of the first operational generation projects using coalmine methane as a result of the Queensland government’s new 13% Gas Scheme.

“The project further advances the use of coal mine methane - a valuable state-owned resource, and is another step towards meeting the government's target which requires electricity retailers to source at least 13% of their power from gas-fired generation,” said Queensland energy minister John Mickel.

Peabody is expected to benefit from greater reliability of electricity supply, improved operational flexibility through the reduction of underground gas drainage, improved environmental performance, and reduced cost of operations through more cost effective drainage.

“Peabody believes in continuous improvement in environmental performance, greenhouse gas intensity and overall efficiency," said managing director Peabody Energy Australia Coal Ian Craig.

"Throughout the world, we are seeing interest in conversion of coal into other valuable energy sources due to scarce supplies of oil and natural gas.

“Through use of this conversion technology, coal mine methane can be captured and recycled for use to provide energy back to our operation."