AGL has released details for a gas-fired power plant in New South Wales, as part of its plans to replace the aging Liddell coal-fired station and move towards cleaner energy.

The company said it was investing up to $400 million in the 252-megawatt facility to be built near Newcastle and be completed during 2022.

Its announcement to the Australian stock exchange follows pressure from the Federal Government to sell the Liddell coal-fired station in the New South Wales Hunter Valley, so it could stay open beyond its planned closure in 2022.

However, the energy company refused, announcing in December its plans to replace Liddell's output with renewables, upgrade the nearby Bayswater coal generator and reuse components of Liddell.

AGL said it was assessing sites for the project near the company's Newcastle Gas Storage Facility.

AGL managing director and chief executive Andy Vesey said the company was "committed to supporting the orderly transition of Australia's electricity generation capability to modern, clean and reliable energy supply".

The company said it also plans to "assess the potential" to develop a further 500 megawatts of gas-fired generation capacity, subject to demand from its commercial and industrial customers.

"Electricity generation is undergoing an increasingly rapid transition to lower cost, clean energy renewable and storage technologies," Mr Vesey said.

"This requires the complementary development of flexible, dispatchable gas-fired technology, as well as policies to support these developments."

Federal Environment Minister Josh Frydenberg welcomed the decision, but said it would not remove the risk of blackouts once the Liddell power station closed.

He said he was concerned the power grid would not cope without the extra power and AGL should consider selling the plant to rival Alinta.

"That's why it's really important that the executives of AGL consider on its merits this offer that comes from Alinta," Mr Frydenberg said.

"Because we don't want to see any shortfall in domestic market. That would be unacceptable to the Government, to have a greater chance of blackouts because of a closure of Liddell."