SCHENECTADY — The city took the first step toward turning a smelly gas into clean electricity on Monday as the Schenectady City Council approved a $497,000 project for the sewage treatment plant.

The money will go toward turning an unused piece of equipment into a “gravity thickener,” in which liquid is drained out of the sewage sludge.

A thicker sludge will produce more methane, which will be crucial to the next step in the process — harnessing that methane to generate electricity for the plant.

The power generation will save the city an estimated $282,000 a year in electricity costs, according to engineers. The city will also save $37,000 a year in materials purchased to thicken the sludge artificially.

Councilman Mark Blanchfield pointed out that once the methane is harnessed, city residents won’t smell gas wafting out of the sewage treatment plant anymore.

“The project will allow us to not only capture the methane and generate electricity with it but to benefit the environment further by not releasing the methane,” he said. “It’s a wonderful program, a win-win both environmentally and financially for the city.”

The city plans to spend another $1.5 million to harness the methane. City officials plan to take out a $2 million bond for the full expense, which could be paid back in less than seven years if the city uses all of the money saved by the project.

There’s still some time before the methane turns on the plant’s lights. The city hasn’t yet purchased the final component — the engines that would use the methane to create electricity.

Those engines generally arrive nine to 12 months after they are ordered, so the city will not see a reduction in utility costs until 2010. At that time, methane is expected to produce 30 percent of the city’s electricity, according to Commissioner of General Services Carl Olsen.