Prime Minister Scott Morrison is in the Hunter on Tuesday to announce the project, which is part of the government's post-COVID gas-fired recovery plan for the nation.

The government said it would construct a new gas power station in the Hunter Valley if AGL does not replace its Liddell coal-fired power station.

The Newcastle Herald understands the potential gas plant would be built on the former Kurri Kurri aluminium smelter site that was acquired by developers Jeff McCloy and John Stevens.

Here's some of the reaction to the news

The Climate Council has accused the government of "throwing taxpayer funds at a dangerous fossil fuel" rather than a plan to rebuild the economy and moving towards a renewables-led future.

"The Federal Government is trying to shore up the gas industry which is in a poor financial state. Meanwhile, the rest of the world is decarbonising," Climate councillor and former president of BP Australasia, Greg Bourne said.

"The economic and technological winds of change are driving us towards a renewables-led future - that is where private sector investment dollars are going."

Climate Council CEO Amanda McKenzie said the government needed to invest in clean, affordable and reliable renewable energy and storage in order to reduce emissions and power prices as well as create jobs.

"The Climate Council's Clean Jobs Plan found that 76,000 jobs can be created across Australia, rapidly getting people back into the workforce while also tackling climate change," she said.

"Australia has an enormous opportunity to be a world leader in renewable energy and manufacturing. This is the plan Australia needs."

Making Australia more reliant on gas will further damage the climate and won't help create jobs, the Australian Conservation Foundation has claimed.

"To switch from coal reliant to gas dependent would see Australia jump from the frying pan straight into the fire," the foundation's climate change program manager, Gavan McFadzean said.

"Gas is a fossil fuel made up mainly of methane, a potent greenhouse gas - it has no place in Australia's recovery from COVID-19. If fully unleashed, Australia's gas resources could be responsible for up to three times the annual climate emissions of the entire world.

Mr McFedzean said recent research showed the gas industry provided "few jobs, pays little tax and would lock in decades of high emissions and high energy prices".

"By giving public money to the gas industry, the Morrison Government is crowding out private investment in clean energy, against the advice of the Business Council of Australia and the Australian Energy Council," he said.

"The truth is Australia does not need more gas. Renewable energy has a 25 per cent share of the main electricity grid. New wind and solar projects, backed by batteries, are best placed to provide reliable power, tackle climate change and create long term jobs."

Oxfam Australia Chief Executive Lyn Morgain said the Prime Minister's move was "deeply concerning" and "a serious betrayal of our Pacific neighbours, whose very existence depends on us taking serious action against climate change".

"This reckless climate policy will have serious consequences for those in our neighbourhood who are most vulnerable to the impacts of climate change," Ms Morgain said.

"Expanding Australia's gas industry would yet again increase our emissions and undermine global climate action. It risks failing not only to meet immediate needs but also imposing a crippling burden on future generations here at home and around the world - in the form of climate damage, stranded assets, fewer jobs and big debts.

"A briefing paper released by Oxfam in July, Australia's energy future & the recovery from COVID-19, showed gas was a very unstable foundation on which to rebuild an economy and build a better future.

"In the face of the twin challenges of economic recovery and the climate crisis, there is a now a once in a generation opportunity to stabilise and strengthen the Australian economy while also tackling climate change by investing in renewable energies. This would not only protect our environment but provide much-needed employment for Australians."

GetUp claimed the project would give "the green light to fracking across the country", hand over billions of dollars of public money to multinational fossil fuel companies and set back a safe climate future for decades.

The political activist group said a gas-led recovery would squander a golden opportunity to ramp up investment in renewable energy by bailing out the dying gas industry.

"There is no social licence for fracking, it's bad news for the climate, and it's a bad investment to pour public money into the dying gas industry, " GetUp's first nations justice campaign director Larissa Baldwin said.

"Bailing out giant gas companies who can't secure private investment with public money doesn't stack up on financial or environmental grounds.

"Throwing public money at unviable gas projects will lock in more fossil fuels at a time when we are rapidly trying to reduce emissions - it doesn't make sense.

"We risk losing this golden opportunity for a clean energy recovery - we should be ramping up public investment in clean renewable energy from the sun and the wind.

"The fundamental failure of the Morrison Government plan is there is no market demand for a big increase in gas - if there was we would have seen private investment.

"Our land and water will be irrevocably destroyed by thousands of fracking wells and huge pipelines - we can't prop up these giant lemons while the rest of the world embraces renewable power.

"Traditional Owners and communities have overwhelmingly opposed fracking on their land for decades because it will be a catastrophe for the climate and water, and won't provide anywhere near the number of jobs the sales pitch promises."

The Federal Government's plan risks deterring the very investments the fovernment is attempting to encourage, the Australian Energy Council said.

The council, which represents major investors in generation and the majority of Australian electricity generators, said the approach may end up being counter-productive.

"The sector is struggling to make final investment decisions in an environment of ongoing policy uncertainty," AEC chief executive Sarah McNamara said.

As noted by the Government's own energy advisers, the Energy Security Board, government interventions or "even discussions and 'threats' of intervention" act as a deterrent.

"For more than a decade we have been warning of the dampening effect State and Federal Government interventions have on investor confidence," Ms McNamara said.

"The Government's earlier plan to underwrite new generation projects in the market also remains under consideration, and this too contributes to the ongoing uncertainty, together with various and competing State-based renewable energy targets,.

"There are no material reliability concerns that would warrant this kind of interventionist approach, and there are already mechanisms in place to address any shortfall identified. The Australian Energy Market Operator's most recent assessment identified a potential shortfall in NSW of only 154MW."

Climate Action Newcastle member John Hayes said the government should stop trying to prop up struggling multinational gas companies, which are "already uneconomic, and who create very few jobs".

"The government is trying to force through controversial new fracking projects against the wishes of Traditional Owners, farmers and local communities, who have made it clear they do not want fracking, with its significant risks to their land and water," he said.

"Entrenching a reliance on gas will only worsen the impacts of climate change.

"The government should instead invest in clean energy and help manufacturers transition away from a reliance on dirty, expensive gas. New wind and solar energy production, backed by batteries, is best placed to provide cheap power prices, tackle climate change and create the long-term jobs Australia so desperately needs.

"Modelling by the Australian Energy Market Operator shows Australia can rapidly transition to a renewable-powered grid without the need for any new gas.

"Gas is a fossil fuel which is driving worsening climate change. When you count fugitive emissions and the emissions from producing, liquefying gas for export, transporting and burning gas, gas is no better for the climate than coal."

School strike for climate participant Veronica Hester, who lives in Scott Morrison's electorate, said she wants the Federal Government to invest in clean energy solutions to power the future for this country.

"I'm a young person who lives in Scott Morrison's electorate," she said.

"With this announcement about public subsidies for new gas plants, the Prime Minister is knowingly putting money into an industry that will destroy the climate and the economy.

"We're at a crossroads now - why stimulate a dead-end industry like gas, when you have a long-term industry like renewables?"

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