A desert site at the top of Spencer Gulf in South Australia is perfect for a pumped hydro venture, EnergyAustralia chief executive Catherine Tanna has said.

What is pumped hydro? Power is generated by releasing sea water from a top dam, through a turbine, into a lower dam

Power is generated by releasing sea water from a top dam, through a turbine, into a lower dam During times of plentiful energy on the network, seawater is pumped up into the top dam, like charging a battery

During times of plentiful energy on the network, seawater is pumped up into the top dam, like charging a battery The top dam would hold about eight hours of power which can be switch on at short notice

Backed by federal funding, the company and its partners will investigate the proposal further, with hopes it could be operational by the end of the decade.

"What's required is to find a site, obviously being pumped hydro, that has water, but we also look for a site that has the right geography and topography ... elevation, but also a site that has proximity to transmission," Ms Tanna said.

Using $450,000 received from the Australian Renewable Energy Agency, the company will look at whether it is feasible to put a 100 to 200-megawatt power station close to Port Augusta and Whyalla.

The system generates power by releasing sea water from a top dam, through turbines and into a lower dam — and could store up to eight hours of power supply, Ms Tanna said.

"The strength of this is around underpinning the reliability, so it does create this storage that can be turned on at very short notice," she said.

"It's also an opportunity to complement the balance of the energy mix in South Australia in a way that's affordable."

The target date for starting operations is the summer of 2020/21, but the company is not putting a number on how many jobs might be created.

Sea water is pumped to work turbines, EnergyAustralia says. ( Supplied: EnergyAustralia )

'Beginning of understanding how significant'

Grattan Institute energy director Tony Wood said storage options such as pumped hydro were critical if Australia kept embracing energy production from intermittent renewables.

"We're at the beginning of understanding how significant this could be in Australia — pumped hydro is a different economic challenge," he said.

"We've got to gradually understand how this can work, not only physically and technically, but how it interfaces with the market," he said.

Prime Minister Malcolm Turnbull and his Cabinet colleagues were briefed on the plan before the federal funding announcement was made.

"If a project of this scale, a pumped hydro project of this scale, had been available recently in South Australia, there wouldn't have needed to been the load shedding that occurred there," Mr Turnbull said.

"We're focussed on ensuring that we achieve ... affordable, reliable electricity and we meet our emissions targets."

Sorry, this video has expired Why is South Australia running out of power?

South Australian Energy Minister Tom Koutsantonis said he welcomed the investigation of any proposal involving storage: "However, what was announced ... is a feasibility study so we have to wait for the results of that study to know whether the proposal is viable."

Mr Koutsantonis criticised the Federal Government for not doing more to support a changing electricity market.

"The Federal Government could achieve this by accepting the advice of the chief scientist and the CSIRO and supporting an emissions intensity scheme, which would simultaneously bring down power prices while helping meet Australia's carbon reduction targets," he said.

"But the Federal Government has refused to do this, so the State Government will announce a dramatic intervention into the electricity market in the coming weeks that is designed to bring down power prices and improve grid stability."

MP, Mayor suggest local support strong

The Federal MP for the Upper Spencer Gulf region, Rowan Ramsey, said he expected the area being considered for use by EnergyAustralia would have strong support in communities there.

"I think they're actually zeroing in on what should be a good site, with close available water," he said.

Port Augusta Mayor Sam Johnson says any clean energy option is a welcome regional boost. ( Twitter: Sam Johnson )

It is less than a year since Port Augusta's coal-fired power station closed, and local Mayor Sam Johnson said he welcomed any idea which involved cleaner options.

"Port Augusta has been home to the power industry for almost 70 years and we certainly see our future in the energy sector," he said.

He said neighbouring Whyalla, which saw its Arrium steelworks go into administration last year, could also expect to benefit.

"Ultimately that's a positive for the region, it's a positive for Port Augusta and it's a positive for Whyalla also," he said.

Solar thermal power ventures have also been on the agenda for the region for some time, including a solar PV project with battery storage which its proponents say could help boost SA's electricity reliability.

Mr Johnson said he hoped the ventures would proceed.