Despite calls from the Prime Minister to keep the coal-powered Liddell Power Station open, AGL has announced it will close the plant and repurpose it with a commitment to clean energy.

Investments will be made in gas, renewables and battery storage as part of the NSW Generation Plan, with AGL confirming it will close the Hunter Valley station in 2022 as planned.

AGL said along with the NSW Government, it is also exploring the feasibility of a pumped hydro project in the Hunter region.

The Federal Government wanted to delay the closure of the plant for at least another five years, but AGL said a replacement electricity generation plan was far more affordable.

AGL chairman Graeme Hunt said the investments reflected the changing needs of the market and improvements in technology.

"This plan demonstrates that old power plants can be replaced with a mixture of new, cleaner technology, while improving reliability and affordability," he said.

An efficiency upgrade will also take place at Bayswater Power Station as part of the plan, which will create more capacity, without using additional fuel.

The Bayswater power station in the Hunter Valley near Newcastle, May 31, 2007. ( AAP: Dean Lewins )

Malcolm Turnbull said the Australian Energy Market Operator (AEMO) was looking at the plan to ensure there was not an energy shortfall.

"AGL has got a plan which they have produced for the first time which they say will meet that gap. It is being examined by AEMO now and we will look forward to discussions with AEMO," he said.

"So I want to be very clear about this, I am technology agnostic about energy."

However, Mr Turnbull fought a hard fight to urge AGL to find a buyer for Liddell to ensure a stable supply of electricity.

"You can't run an electricity system just on solar panels and wind farms. You can't."

Coal plant retirement needs to be sped up: ACF

Australian Conservation Foundation chief executive Kelly O'Shanassy said the decision was great news.

"We need to listen to AGL here, we need to switch off coal and move to renewables as fast as we can," she said.

Ms O'Shanassy said the Turnbull Government must now drop its obsession with coal and end its delaying tactics on climate change action.

Former AGL chairman Jerry Maycock warned the 45-year-old station was nearing the end of its lifespan. ( ABC News: Kerrin Thomas )

"Keeping Liddell polluting for another five years was nothing more than a poorly informed thought bubble from the Prime Minister.

"What we need is a strong, comprehensive plan that would speed-up the retirement of polluting coal plants and accelerate the transition to clean energy."

In September former AGL chairman Jerry Maycock warned the 45-year-old Liddell station was nearing the end of its lifespan and was not at peak reliability.

"While it may be technically possible to extend the life of the power station, the costs of doing so in a way to ensure the plant is even moderately reliable are certain to be substantial," he said.

AGL announced in 2015 that as part of its greenhouse gas policy, its coal-fired power stations including Liddell would close by 2022.

A commitment has been made by AGL to its employees that it will not use forced redundancies when Liddell retires.