NEW YORK (Reuters) - The Navajo Nation, which has struggled for years to build a coal-fired power plant, said on Thursday it has formed a joint venture with a Boston company to develop 500 megawatts of wind energy on its lands in the U.S. West.

Navajo Nation President Joseph Shirley signed an agreement with Joseph Kennedy III, the chairman and president of Boston-based Citizens Energy Corp to develop the project.

The agreement forms a joint venture between Citizens, a global developer of renewable energy and power transmission, and Dine Power Authority, the Navajo's wholesale energy enterprise.

Wind power "can bring economic prosperity for the Navajo people and build our energy independence while providing jobs and other benefits for the Navajo Nation," Shirley said in a statement.

Under terms of the agreement, the Navajos would have a ownership stake in the project development company and be able to invest additional equity in the project, eventually acquiring a majority ownership stake, according to statement from the Washington office of the Navajos.

Citizens Energy has also agreed to reinvest a portion of the profits from the project on the Navajo Nation, it said.

Early estimates anticipate the Dine Wind Project could produce between $60 to $100 million in total revenue for the Navajo Nation over the lifetime of the projects, not including the jobs and environmental benefits of wind energy, the Navajo statement said.

About 200,000 people live on the Navajo Nation, a sovereign nation about the size of West Virginia, which spreads over Arizona, New Mexico and Utah. The Nation has been plagued with poverty and unemployment and many residents do not have power or running water.

Shirley has supported building a coal-fired power plant called Desert Rock, which, he says, would bring about $50 million to the tribe annually.

The going has been hard for the coal plant. The Navajo Nation and Sithe Global Power, LLC are trying to build the $3 to $4 billion 1,500 MW plant, but they have been stalled for years because the Environmental Protection Administration has not issued it an air permit.

Desert Rock has also been criticized by some Navajos for its potential to pollute the air in a place where two large coal plants already operate. And Sithe has not yet decided whether it would bury its emissions of the main greenhouse gas carbon dioxide, which has also led to criticism.

Some Navajos also complain that most of the power from the coal plant would be exported to high demand areas in Arizona and Nevada and that many of them could still be left without power.

The Navajos Nation sued the EPA last week over its lack of action on the air permit.

If the 500 MW wind power project is successful, it could be a significant addition to wind power generation in the United States. Installed U.S. wind power by the end of 2007 was nearly 17,000 MW, according to an industry group.