NSW government rebuts federal criticism of its electricity "roadmap" as tensions rise over Kurri gas power station

But Canberra may still tell Snowy Hydro to proceed at Kurri even if the 250-megawatt Tomago plant and the 350 to 400-megawatt extension of the existing Tallawarra station proceed.

This is because the combined extra output is only two-thirds of the 1000 megawatts in "dispatchable" power the government says is needed if AGL shuts the coal-fired Liddell power station, as the company says it intends to, in 2023.

In a sign of the political tensions, the federal government is blaming the NSW government - in particular Energy and Environment Minister Matt Kean - for his Electricity Infrastructure Roadmap released in November, saying that the policy and its emphasis on pumped-hydro caused "uncertainty" for potential power investors including AGL and Energy Australia.

Mr Kean hit back yesterday, saying any deferral of the Tomago or Tallawarra projects had nothing to do with the state government.

"AGL and Energy Australia have been talking about building their gas plants for years, in fact AGL committed to building the Newcastle gas plant in 2018," Mr Kean said.

"It's just wrong to link any deferral of those investments to NSW government policy."

Records show a Tomago gas turbine was first approved in 2003 for Macquarie Generation, which was bought by AGL. Tallawarra B was approved under a state Labor government in 2010 and had its approval extended in 2016.

The Snowy Hydro plant is proposed for land on the former Kurri aluminium smelter site, which is being remediated by its final owner, Norwegian company Hydro. Another piece of the jigsaw fell into place on Wednesday when the NSW government approved remediation plans for 80 hectares of the 2000-hectare site.

On December 23 the state declared the Snowy Hydro plant as "high priority" Critical State Significant Infrastructure (CSSI).

"Irrespective of the CSSI status, the project will still be subject to extensive community consultation and a thorough environmental assessment in accordance with the same requirements as any other major project," the planning department said at the time.

"The proponent, Snowy Hydro, can now request assessment requirements to prepare an Environmental Impact Statement (EIS) which will then go on public exhibition for community feedback and detailed assessment before a final decision is made."

Announcing the remediation approval on Wednesday, the NSW government said contaminated material would be kept in a "containment cell" to be built on the site of a former smelter clay pit - the roughly circular area visible in the accompanying satellite image.

"This is an area with great potential, especially considering the government recently declared Snowy Hydro's plans for a new $610 million gas fired power station as critical state significant infrastructure," Planning Minister Rob Stokes said on Wednesday.

The growing focus on the Snowy Hydro gas-fired proposal comes as the National Party's backbench policy committee released its Manufacturing 2035 policy - as reported this week - which advocates the building of new coal-fired power stations to replace those that will be phased out in the years to come.

Although the Deputy Prime Minister and Nationals leader Michael McCormack was diplomatic about the backbench paper - reportedly saying the government would "absolutely look at" a coal-fired power station if the private sector or a state government pitched one - Treasurer Josh Frydenberg was less encouraging.

"We're not about to fund a new coal-fired power station," Mr Frydenberg told ABC radio.

"What we are about to do, what we are in the process of doing is encouraging security of supply, more affordable power and reducing our carbon footprint."

Although Snowy Hydro and its power retailer Red Energy operate commercially in the National Electricity Market, their ownership by the Commonwealth gives the federal government an ability to influence the company's decision making.

Saying it was concerned about warnings that NSW needed more "dispatchable" power to avoid a higher risk of blackouts once Liddell closed, the federal government set up a Liddell Task Force in August 2019.

The task force reported in September last year and the government supported six of its seven recommendations, including two aimed at supporting Tomago Aluminium, the state's biggest energy user and a customer of AGL.

Canberra says its threat to intervene was driven by predictions from AEMO and others that wholesale power prices could "skyrocket" without Liddell, as had happened in Victoria when the Hazelwood brown coal station closed in Victoria in 2017.

A spokesperson for Energy and Emissions Reduction Minister Angus Taylor said the Tallawarra and Tomago plants ere "good projects and there is room for them in our 1000-megawatt target".

"We expect the NSW Government will step up and work closely with the private sector to deliver important projects to keep prices low and the lights on in NSW," Mr Taylor's spokesperson said.

The state government has confirmed it is talking with AGL and Energy Australia about "support options" for their gas turbines, which are "peaking" rather than "baseload" plants.

Gas supply is another concern, with Snowy Hydro confirming it has to switch its 667-megawatt Colongra plant on the Central Coast to diesel when gas is not available.