The project's environmental impact statement estimated the peaker would operate for about two per cent of the time, but Mr Taylor said the announcement that Eraring Power Station would close in 2025 meant more dispatchable power would be needed to prop up the grid.

"It will run more than two per cent over the life of the project. I'm very happy to make a bet on that," he said.

"The idea that you are not going to need a gas generator like this one in the face of those power station closures is just nonsense. But importantly what we have got is more intermittency in our energy grid as solar and wind comes in at record rates.

The Europeans are running into all sorts of trouble because they haven't got enough dispatchable capacity to complement the renewables."

Mr Taylor turned the first sod at the $600 million project on Wednesday. Construction on the project's foundations are due to begin in the next month.

Mr Taylor took aim at Labor's proposal to fuel the project with green hydrogen as quickly as possible. Labor has promised to spend an extra $700 million to achieve the goal.

"It's not clear to me how they are doing it, it's not clear there's an extra job in it but what is clear is the economics of a hydrogen generator from day one will not work," he said.

"They (Labor) haven't laid out a business plan to show that it will. We have done the work and laid it (the government's plan) out in enormous detail. What it says is if you try to do it (introduce hydrogen) in that timeframe the economics won't work."

The turbines that will drive the 660 megawatt power plant, which is due to start operating in late 2023, will initially be capable of running a 15 per cent hydrogen blend. Minor modifications will allow this increase to 30 per cent.

Further capital investment would allow the plant to fully run on hydrogen.

Mr Taylor said the cost of hydrogen production would dictate how quickly the fuel was introduced to the peaker.

"(The cost of hydrogen) will come down as the technology improves. There are very significant investments as we speak in getting the cost down. But if you try and introduce a technology before it is ready someone will pay and typically it will be someone with their job," he said.

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