By Scott DiSavino

(Reuters) - CPS Energy, San Antonio, Texas's municipal power company, agreed to buy 200 megawatts (MW) of electricity from a proposed $2.4 billion clean coal power plant in Texas, the Department of Energy (DOE) said in a release.

The 400-MW Texas Clean Energy Project will be an Integrated Gasification Combined Cycle (IGCC) facility developed by privately held power plant developer Summit Power Group of Seattle.

Officials at Summit Power and CPS were not immediately available for comment on the terms of their agreement. In June, Summit announced that CPS would enter into a 25-year agreement to buy power from the plant.

The plant will be capable of capturing about 90 percent of the carbon dioxide (CO2), 99 percent of the sulfur dioxide, 90 percent of the nitrogen oxide and 99 percent of the mercury it produces, the DOE said. It will be built just west of Midland-Odessa.

The Texas Clean Energy Project was a third-round selection under DOE's Clean Coal Power Initiative, a cost-shared collaboration between the Federal government and private industry aimed at stimulating investment in low-emission coal-based power generation technologies.

The Texas Clean Energy Project would cost about $2.4 billion and will receive $450 million in federal funding from a couple of sources, the DOE said. The Texas facility is expected to be fully operational in 2015.

Despite hundreds of millions of dollars the federal government has offered the industry to build clean coal plants, the construction of the projects got off to a slow start.

FutureGen, another clean-coal project, was proposed by the administration of George W Bush in 2003. In 2007, the FutureGen members picked a site in Mattoon, Illinois, to build a plant that was originally expected to cost about $1.8 billion. But in 2008, the DOE restructured the project due to its rising costs.

In 2010, the administration of Barack Obama revised the FutureGen project, now dubbed FutureGen 2.0. The new plan called for retrofitting an existing coal plant in Meredosia, Illinois, at an estimated cost of $1.3 billion.

The current schedule for FutureGen 2.0 is for construction to begin in the second half of 2012 and be complete in late 2015, according to the FutureGen website.

Gasification uses oxygen and steam at high pressures to convert coal into synthesis gas, also known as syngas.

The snygas is cleaned to remove impurities and sent to a gas turbine where it is burned to produce electricity. The hot flue gas from the gas turbine is used to generate steam, which is fed to a steam turbine to produce additional electricity.

At the Texas facility, the DOE said about 83 percent of the nearly 2.9 million metric tons of CO2 that will be captured annually will be used for enhanced oil recovery in the West Texas Permian Basin.

Coal fired power plants generate about 45 percent of the electricity in the United States.

The DOE said it was investing in clean coal because it expects coal to continue to play a dominant role in meeting the nation's future energy needs.

(Reporting By Scott DiSavino; Editing by Bob Burgdorfer)