Severn Power Limited has signed contracts with Siemens AG and Siemens for the design, engineering, construction, commissioning, testing and completion, operation and management of the 850MW Severn Power Combined Cycle gas turbine plant at Uskmouth near Newport.

This follows the award of planning permission for the project by The Department for Business, Enterprise and Regulatory Reform in August 2007, and the announcement on last month that Welsh Power Group Limited has mandated three banks, Calyon, ING and The Royal Bank of Scotland, to lead arrange and underwrite up to £550m debt financing in support of the development.

Alex Lambie, chief executive of Welsh Power, owners of Severn Power, said: "We are delighted to have concluded these critical negotiations. We are looking forward to commencing construction, and are confident that Siemens' expertise will bring Severn Power on line on schedule in 2010.

"There have been concerns raised that the UK will be unable to build new plant, to meet the generation shortfall resulting from older plant retiring, due to the global demand for turbines.

"The Severn Power project will play an important role in delivering efficient and competitive energy for GB customers in the coming years.

"Severn Power will create more than 650 skilled jobs, provide vital electricity generation for South Wales, and contribute to the Welsh Assembly's aim of energy self-sufficiency for Wales."

Site works have already commenced, to prepare the site for building and to create environmental landscaping features that are an integral part of the development.

Severn Power is due to start commercial operation in 2010 following a 30 month construction period and four months of commissioning.