Microgy, Inc. (Microgy), a subsidiary of Environmental Power Corporation (Environmental Power), has entered a long-term renewable natural gas (RNG) supply agreement with Xcel Energy Inc. (Xcel), subject to approval by the Colorado Public Utilities Commission. Xcel will use RNG to generate carbon-neutral electricity at the company's Fort St. Vrain generating station near Platteville, Colorado.

The agreement will help Xcel Energy continue to meet its mandates under the state’s Renewable Energy Standard (RES) and support the company’s efforts to reduce carbon dioxide emissions.

Microgy expects to begin construction on its first Colorado RNG(R) facility during the first half of 2010, when it currently estimates that all permits, design and funding for the project will have been completed. Microgy’s initial project in Colorado is expected to produce 915,000 MMBtu of RNG(R) per year, enough to generate 125,000 megawatt-hours of electricity, or the equivalent power use of 17,000 homes in Colorado on an annual basis.

Our relationship with Xcel Energy is very exciting for Environmental Power, as it demonstrates continued confidence in our ability to develop and operate renewable energy projects that produce a sustainable, high-volume renewable energy product, said Rich Kessel, President and CEO of Environmental Power. Furthermore, it continues to demonstrate the long-term premium value of our RNG(R), as it helps our customers achieve their renewable portfolio standards requirements.

This effort further gives us the opportunity meet both our renewable energy and emissions reductions targets in Colorado, said Tim Taylor, President and CEO of Public Service Co. of Colorado, an Xcel Energy company. Microgy’s solution also gives us the added benefit of conserving traditional fossil fuels at one of our largest power plants.

The ten-year agreement with Xcel Energy has an option to renew for an additional ten years. Under this agreement, Microgy’s RNG(R) will be sold on a fixed-price basis at a premium to the current market price for traditional natural gas. Microgy’s RNG(R) will be produced and supplied to Xcel Energy from a Microgy project to be located in Weld County, Colorado.

Microgy will use an anaerobic digestion process to break down animal waste from a local dairy farm and other organic waste products, such as food processing residuals, from along the Front Range of Colorado. The waste stream will be converted to methane gas using the anaerobic digesters. In turn, the methane will be used to help produce electricity at Fort St. Vrain, Xcel Energy’s largest natural gas generation facility in Colorado.

The renewable natural gas from this process is considered carbon neutral, and will count toward Xcel Energy’s RES mandate to produce 20 percent of its annual electricity from renewable resources, by 2020. In addition, the company also is working toward reducing carbon dioxide and other power plant emissions.