NSW officials have announced a tender targeted at building a gas-fired peaking plant, set to provide backup electricity for a greener future grid.
Energy Minister Penny Sharpe said gas-fired stations were important to the grid as the state faces a reliability shortfall in 2033-34, according to government forecasts.
The state Labor government will include the potential project under the Long Term Energy Services Agreement, which guarantees operators a minimum revenue floor for renewable, storage and firming projects.
While the NSW government is seeking to boost its economic-management credentials ahead of facing voters at the state election in March, the move puts it in conflict with the federal Labor government.
Federal Labor excludes fossil fuels, including gas, from its direct underwriting program, known as the Capacity Investment Scheme.
''While gas-fired power stations will operate only occasionally, they will play a critical role in maintaining reliability during rare periods when renewable generation is low and available storage has been exhausted,'' Ms Sharpe said on Tuesday.
Technologies other than gas will be eligible for the 1500MW firming job.
However, analysis provided to the government suggested a gas-fired peaking plant would be the most likely solution.
The tender will be conducted by independent NSW Consumer Trustee, ASL, with consultation open on the proposed design before it is launched in 2027.
Gas projects have been permitted under the Long Term Energy Services Agreement since it was legislated in 2020.
Also on Tuesday, Treasurer Daniel Mookhey will speak to the government's pre-election economic plans at the Sydney Institute.
''In my first economic statement to parliament in June 2023, I said that the key to bringing inflation under control is to bring our own spending under control," he will say.
Inflation has an outsized impact on NSW families, who on average hold larger mortgages than other Australians, according to Mr Mookhey.
The state will release a debt reduction plan by the end of the week, he will say.
Mr Mookhey is aiming to reduce the state's debt by more than $10 billion.
"Fiscal responsibility isn't easy, it's not always popular, but it has never been more essential for the prosperity of our great state,' he will say.
A global rating agency last week rapped the knuckles of Mr Mookhey's federal counterpart Jim Chalmers for government spending.
S&P recently reaffirmed Australia's AAA credit rating, but lead analyst Martin Foo warned near-record spending could threaten financial health if economic luck runs dry.
Good credit could pose two issues down the road, he warned.
Firstly, Australia's elevated spending was structural in nature, including higher spending on defence, aged care, social security and interest payments.
The second problem was high government spending was complicating the job of the Reserve Bank, he added.
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