TransAlta said the 150 megawatt combined cycle gas power plant would be built on Horizon’s existing site at the Boodarie industrial estate in South Hedland and would be one of the most efficient power stations in the region.

The WA government named TransAlta as its preferred bidder for the project in April and recently approved the commercial agreements between TransAlta and Horizon to sanction development.

WA Premier Colin Barnett thanked FMG for its commitment to the project and said TransAlta’s presence would introduce much-needed competition into the market.

“This state-of-the-art energy infrastructure will be built using private rather than state funds, demonstrating there are still innovative ways to deliver important infrastructure in times of financial constraint,” Barnett said.

WA Energy Minister Mike Nahan said the agreement negotiated by Horizon was just the beginning of improved coordination and integration of energy infrastructure in the state’s northwest.

“Horizon Power should be proud of this outcome of several years of work, which is part of a bigger vision to have a fully integrated and coordinated electricity network in the Pilbara,” he said.

“This will ensure precious resources are not wasted and that customers are buying power from the most cost-effective system possible.”

Construction of the power station will create an estimated 250 jobs and start in early 2015, with first electricity due in 2016 and full commissioning expected in 2017.

TransAlta said the development was fully contracted under 25-year power purchase agreements with Horizon and FMG and might “be expanded to accommodate additional customers at later dates”

“We are very pleased to have Horizon Power and Fortescue Metals Group as anchor customers,” TransAlta president and CEO Dawn Farrell said.

FMG previously flagged that its plans to switch from diesel-fired power to gas-fired power across its Pilbara operations could save an estimated $20 million a year.

The company sold its Solomon power plant in the Pilbara to TransAlta in 2012.