Approval has been granted for Australia's first net-zero hybrid power station.

A new power plant capable of running on both hydrogen and natural gas will be built in New South Wales, funded by the private sector alongside both state and federal governments.

EnergyAustralia will build the power station near Lake Illawarra, south of Wollongong, with $83 million in government money put towards the plant.

It is expected to produce more than 300 megawatts of power.

Tallawarra B will sit alongside the company's existing Tallawarra A 435-megawatt gas plant.

Government backing has seen the project fast-tracked, and should be operational by 2023-24.

EnergyAustralia says the plant's carbon emissions will be offset through a combination of renewable technologies like green hydrogen and carbon credits. 

“We have made an offer to purchase clean hydrogen, equivalent to five per cent of the fuel we will need for the Tallawarra project, by 2025,” executive Liz Westcott said.

“In doing that we will hope to stimulate the economy locally to provide that hydrogen.

“We will also be looking at purchasing Australian carbon credit units that are run by the government under the clean energy regulator.

“We will look to use those to offset emissions as required.

“We are also going to co-invest in engineering studies to see how much more hydrogen we can put through the Tallawarra plant.”

EnergyAustralia says it will buy up to 200 tonnes of green hydrogen per year from 2025, or just five per cent of the plant's fuel use.

It is unclear whether the plant will source hydrogen created using renewable energy (known as ‘green hydrogen’), but some suggest its demand will drive new interest from the private sector.