The existing EnergyAustralia 300+ megawatt Tallawarra B power station will expand following an agreement with the state government.

It has been touted as Australia's first net zero emissions hydrogen and gas capable power plant, with direct carbon emissions from the project offset over its operational life.

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"It means the station will be operating in time for the summer of 2023-24, following the closure of the Liddell power station, and it will help to kick start the green hydrogen industry," managing director, Catherine Tanna, said.

"We are leading the sector by building the first net zero emissions hydrogen and gas capable power plant in New South Wales. What's particularly exciting is that further engineering studies will see if the amount of green hydrogen can increase, which will further support the Port Kembla Hydrogen Hub."

EnergyAustralia will also offer to buy 200,000 kilograms of green hydrogen per year from 2025.

"This project sets a new benchmark for how gas generators can be consistent with NSW's plan to be net zero by 2050 by using green hydrogen and offsetting residual emissions," Minister for Energy, Matt Kean, said.

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The announcement follows the federal government's energy industry deadline where it challenged the private sector to come up with a proposal for a gas plant by the end of April.

Energy Minister Angus Taylor has previously said that the government would build a gas project if the private sector does not.

Government-owned Snowy Hydro has put a proposal forward to build a power station in Kurri Kurri where an aluminium smelter used to be.

The proposal has been declared a critical infrastructure project for NSW under its environmental planning laws, meaning it is considered essential for economic, environmental or social reasons, but Tuesday's expansion announcement could now put a stop to the project.

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