AGL says it is confident the capacity that will be lost from the closure of Liddell power station will be replaced with a mix of energy projects across the country, thereby negating the need to build a gas generator at Kurri Kurri.
But the government has set a tight deadline of next April for the industry to show that it can replace the 1000 megawatts that will be lost when the coal-fired power station closes in 2023.
"The Commonwealth government would prefer not to step in. That is not our Plan A. But nor will we shy away from taking action to protect consumers and support jobs, including here in this region and so many like it," Prime Minister Scott Morrison said while visiting the Hunter announce the government's post-COVID gas-recovery plan on Tuesday.
The government confirmed Snowy Hydro is developing options to build a $500 million gas generator at Kurri Kurri should the market fail to deliver.
It would most likely be supplied with gas from the from the yet-to-be-completed $1.2 billion, 850 kilometer Queensland to Hunter gas pipeline.
Business and industry groups generally welcomed the government's plan to guarantee affordable and reliable power.
But climate change groups slammed the proposal saying it would lead to greater greenhouse emissions and hasten global warming.
AGL chief executive Brett Redman said the company was 'fully aligned' with the government's objectives of providing secure, reliable and affordable energy.
"AGL has led investment in Australia's energy market, including the building of the only new gas generation on the east coast in the last seven years at Barker Inlet, the investment in a 100 megawatt efficiency upgrade at our Bayswater power station and the development of other firming and storage technology," he said.
"Only last month we announced our plans to develop 850 megawatts of battery storage capacity across the eastern states by 2024."
Mr Redman said the proposed Newcastle gas-fired power station had strategic, economic, efficiency and environmental benefits for AGL and the national market.
"We've made good progress on this proposed development at Newcastle with the environment approval process underway and a final investment decision expected by early 2021."
"The future of energy requires a combination of technologies and gas is a critical part of that transition, as are renewables and the firming technology that increases their reliability. We will continue to lead investment in line with the market drivers of customer choice, technology and community needs."
Matt Howell, chief executive of Tomago Aluminium, the state's largest energy consumer, said the government's plan made sense.
"We think it's a very prudent and sensible approach from the government because what they are doing is making a very clear statement that the firmed generation, the dispatchable capacity from Liddell, has to be replaced with dispatchable capacity.
"Regardless of the colour of your politics or your leanings around the fuel mix, replacing the like for like is eminently sensible if we want to maintain an energy-intensive manufacturing footprint."
Hunter MP Joel Fitzgibbon and Paterson MP Meryl Swanson said they had spent the past three years working with the energy industry to build new generation capacity in the Hunter and to deliver more affordable gas to support the region and to create jobs.
"Today we appear to have the Prime Minister's support - better late than never," they said.
"Pumped-hydro, gas-fired generators and battery storage will stabilise our electricity grid, create jobs, support our manufacturing sector, and maintain the region's status as the powerhouse of NSW. A new gas pipeline from Queensland can deliver more affordable energy for industry and households alike.
"Since 2017 the Turnbull and Morrison governments have been running interference on our aspirations for the Hunter by unrealistically talking about extending the life of the 50-year-old Liddell plant. Today's announcement is a capitulation and a welcome one.
"In the Hunter we want two gas-fired generators and hopefully AGL will deliver one for Tomago and Snowy Hydro will deliver one for Kurri Kurri. If supported, the new gas pipeline will be a big boost for the Hunter's economy."
But the Australian Conservation Foundation commissioned Australia Institute report Weapons of gas destruction found Australia's gas resources could be responsible for up to three times the annual climate emissions of the entire world.
"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.
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