Under the agreement, POSCO will install and operate a fuel cell-based electric generator at Korea South-East Power's plant in Bundang, Gyeonggi province, to supply 250 kw of electricity.

The two companies also signed an accord to coordinate with each other for developing and marketing fuel cells as part of an effort to enhance the competitiveness of their products in the global market.

The world's fifth largest steelmaker entered into the fuel cell business, as the demand for alternative energy is rapidly growing due to a recent hike in oil prices.

A fuel cell is an alternative energy-supplying device, which can continuously produce electricity by transforming chemical energy such as hydrogen and methanol into electric power.

Since a fuel cell shows more efficiency in energy transformation than any other renewable energy source, the government and several companies consistently show interests in its development.

POSCO is currently producing electricity with a fuel cell-based electric generator installed at the Pohang University of Science and Technology six months ago.

The company is scheduled to set up new generators in a hospital in Gwangju and a sewage treatment plant in Seoul by the end of the year.

It also plans to launch its own products in overseas markets within several years, based on advanced fuel cell technologies introduced from abroad.