Once completed, the $170 million facility will be Australia's first purpose-built coal seam methane power station, using feedstock from QGC's Surat Basin operations.

AGL and QGC said today they had signed an $80 million three-year hedging agreement, starting in the first quarter of 2009.

"The hedge is for only 66 percent of the Condamine power station output, but covers all of our payments under the tolling arrangement in those three years," QGC managing director Richard Cottee said.

"Additionally, because it is a generation-following hedge, it does so with minimal risk to QGC.

"This enables QGC to take advantage of the expected price volatility during those years in the knowledge that our costs have already been covered."

AGL managing director Michael Fraser said the transaction enhanced his company's "already strong" position in the Queensland energy market.

"Complementing our investments in QGC, Sun Gas and Powerdirect, this transaction builds on AGL's purchase of the dispatch rights from the Oakey and Yabulu power stations, the latter being a key component of the AGL-Arrow joint venture that last week acquired Enertrade's gas merchant business," he said.

"Our portfolio is essentially hedged for most foreseeable market conditions for a number of years at a market competitive cost and we are very comfortable with our combined portfolio of derivative positions and physical generation as we move into the summer months."