Mr Kean said NSW would remove a region in the central west, centred on Dubbo, from the rules governing how investment is approved in the main grid, known as the National Electricity Market (NEM). The move will create a 3000-megawatt renewable energy zone, the "first coordinated" area of its kind in Australia, Mr Kean said. "The cheapest way of delivering reliable energy today is wind and solar," he said. The plan – which will require legislation to be passed in 2020 – was prompted by an inability of the existing planning process to accommodate the explosion of new wind and solar farm proposals. On present settings, perhaps only one in 20 of the proposed projects will get up without radical intervention, Mr Kean said.

Under the plan, a special corporation would auction off access rights to the grid, giving certainty to developers that they will be able to deliver their output to the market. While generators would pay more upfront, they would have more certainty, Mr Kean said. Households and businesses would benefit because the resulting additional low-cost power would bring electricity prices down. AGL's Liddell coal-fired power station will close in 2023 but others such as Yallourn in Victoria could also shut within a few years. Credit:AAP Mr Kean said the key market regulators – such as the Australian Energy Market Operator and the Australian Energy Markets Commission – support the plan. An AEMO spokesman said the operator welcomed the NSW energy strategy.

"AEMO is working in partnership with the NSW government to align engineering requirements with land-use planning and community engagement to ensure a least-cost pathway for developing these resources," he said. "We expect the NSW proposal of providing firm transmission access will lower the risk and cost of project development." A solar farm under construction outside the township of Nevertire in western NSW. Credit:Wolter Peeters Mr Kean briefed other ministers attending the COAG energy council summit on Friday. Angus Taylor, the federal Minister for Energy and Emissions Reduction, said the Commonwealth had been "working productively with the NSW government, including on their plans for renewable energy zones".

Loading "We must ensure that any new transmission meets a regulatory test to ensure the lowest cost to consumers," he said. Dylan McConnell, an energy researcher at the University of Melbourne, said the NSW carve-out "was not necessarily bad so long as the right processes ... are in place". The NEM had been set up to bring consistency between states, and NSW's special zone "winds that back to some degree", he said.

On the other hand, the existing rules – known as regulatory investment tests for transmission (RIT-T) – did not fully prepare for the exit of ageing coal power stations or the climate change policies and risks facing the grid, Mr McConnell said. The NSW plan's other components include having the state's chief scientist and engineer assess challenges and opportunities to meet the zero-emissions goal. With funds of "more than $100 million" over the next decade, NSW will identify and support the emergence of new technologies. These include so-called "green hydrogen", which would use renewable energy to create a zero-emissions fuel for use at home and abroad. NSW will set a goal of requiring 10 per cent of the state's gas to come from green hydrogen by 2030, Mr Kean said. Consumers, meanwhile, will be encouraged rather than forced to seek less carbon-intensive options, whether when buying electricity or purchasing a new car through a "mandatory information standard" for those goods.

If we can find the solution [to de-carbonise] here, then that will underwrite our prosperity for generations to come. Energy Minister Matt Kean While the details are yet to be finalised, one option would be a five-star carbon rating system for electricity contracts. "We want the electricity providers out-competing each other on the impact they’ll have on the environment," Mr Kean said. Loading The government would set up a facility allowing consumers to offset emissions, much like voluntary programs operated by the airlines or car fleets.