The Federal Government has announced a $2 billion intervention in Australia's electricity supply debate, by expanding the Snowy Mountains hydro scheme in a bid to power up to 500,000 homes.

Key points: Expansion aimed at addressing energy security, preventing power shortages in eastern states

Expansion aimed at addressing energy security, preventing power shortages in eastern states First major expansion of Snowy Hydro scheme since construction completed in 1974

First major expansion of Snowy Hydro scheme since construction completed in 1974 Energy Minister said the expansion will "run into the billions of dollars"

Prime Minister Malcolm Turnbull revealed the plan to increase the current 4,000 megawatt output of the scheme by 50 per cent, which the Government will claim is an "electricity game changer" and will help prevent power shortages in the eastern states.

"This will ultimately mean cheaper power prices and more money in the pockets of Australians," he said.

Mr Turnbull has declared energy security will be the "defining debate" of the parliamentary year.

The "Snowy Mountains Scheme 2.0" will involve building new tunnels and power stations but no new dams will be built.

The announcement came after the South Australian Government this week said it would spend more than $500 million to build a new gas-fired power plant and Australia's largest battery, as it moves to secure the state's energy supplies.

Mr Turnbull said the supercharging of the Snowy Hydro would be superior to South Australia's plan.

"In one hour it could produce 20 times the 100 megawatts an hour expected from the battery proposed by the South Australian Government, but would deliver it constantly for almost a week," he said.

"The unprecedented expansion will help make renewables reliable, filling in holes caused by intermittent supply and generator outages.

"It will enable greater energy efficiency and help stabilise electricity supply into the future."

The scheme was completed in 1974, and is owned by the Federal, NSW and Victorian Governments. ( Supplied: NSW Office of Water )

It is the first major expansion of the Snowy Hydro scheme since construction was completed in 1974, and the Government will talk up the potential for "job creation and economic security for thousands in the construction and engineering sectors".

The Federal, New South Wales and Victorian Governments own the iconic renewable electricity power scheme.

The Australian Renewable Energy Agency will lead the project, but it has previously warned pumped hydro projects have long lead times of up to seven years.

Snowy extension will be 'diabolically difficult'

Energy Minister Josh Frydenberg said while the scheme's expansion would "run into the billions of dollars", Mr Turnbull was committed to addressing energy security.

"This new project will have the potential to ensure that there will be the necessary energy supply, renewable energy supply dare I say, to those on the east coasts at the times of peak demand," Mr Frydenberg said.

"The amount of power and new power we're talking about here will be bigger than the Hazelwood plant which is scheduled to close at the end of this month.

"This is a game-changing announcement, something that is iconic in Australia, namely the Snowy Hydro scheme and I think it should be welcomed by all Australians."

Frontier Economics managing director Danny Price said the planned extension would be "diabolically difficult" to deliver.

"There's a very good chance it will never happen, but with the best of intentions of all three Governments that own it, it will still take a long time," he said.

Mr Price said the new scheme was also "not going to add to the system at all".

Sorry, this video has expired Josh Frydenberg says the Federal Government will work with NSW and Victoria to make the scheme a reality

"Let's accept that they're exactly right, that in four years' time that this plant will come online — that's still four years away from a problem we have right now," he said.

"We've got power stations closing right now, and so even if that plant was built on time, all it's going to do is meet the demand that has grown between now and then."

The Federal Government said a feasibility study for this project would be finished by the end of the year and construction would start soon after that.

It said the plan to expand the Snowy Hydro will not affect the scheme's ability to supply water to irrigators in New South Wales, South Australia and Queensland.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 8 minutes 34 seconds 8 m Pumped hydro could be part of the solution to Australia's energy instability problems.

But Mr Price said the extension plan should not be seen as a quick fix.

"I don't think people should get carried away with this because it's a long way off," he said.

"The problem that we face now, and the problem that South Australia faces right now, is immediate, so this is a much longer term plan."

Investment welcomed despite environmental concerns

Snowy Hydro chief executive Paul Broad said the multi-billion-dollar investment was necessary to secure Australia's energy market.

"We know that in a decarbonised economy with lots of variability in demand, the only way to keep the lights on is to turn the mighty Snowy on," he said.

Australian Conservation Council chief executive Kelly O'Shannassy said she welcomed the Government's investment in renewable energy, but raised concerns about potential environmental impacts.

"We are talking about the Murray and Snowy Rivers here which were incredibly damaged by the scheme, and we are slowly repairing that damage and we need to make sure any scheme does not take us back to the 1950s," she said.

"Any adjustments to the Snowy scheme need to be considered for their impacts on the river system, agriculture and the environment."

NSW Energy Minister Don Harwin welcomed the decision and told the ABC he did not know how much money the state would be asked to contribute.

The investment has also been welcomed by the administrator of the Snowy Valleys Council, Paul Sullivan, who said it would bring more jobs to the region.