Origin Energy has announced a $230 million plan to expand the Shoalhaven hydro electricity scheme from its current 240 megawatt capacity to up to 500 megawatts.

The scheme, based near Kangaroo Valley on the NSW South Coast, has been pumping water up hill from Lake Yarrunga to power stations at Bendeela and Kangaroo Valley to generate electricity for more than 40 years.

Origin Energy CEO Frank Calabria announced the expansion plans at the facility on Monday in response to demand for reliable power and to reduce emissions.

"With the energy market in transition we see an opportunity to expand, making it a really substantial pumped hydro scheme in the national electricity market," said Frank Calabria.

"Australia's energy market has been dominated by baseline coal for such a long time, but as we transition we have more renewables coming in, coal fired power station are getting older and leaving the system we need reliable power."

The plant can be put into operation in just a few minutes and helped provide energy during last year's summer heatwaves.

"Shoalhaven would provide more reliability in peak times of energy use, like those really hot summer days," said Origin Executive General Manager of Energy Supply and Operations Greg Jarvis.

With the Liddell coal-fired power station slated to close in 2022, Origin says the enlarged Shoalhaven Scheme could contribute to NSW's electricity mix in the future.

Water is pumped from Lake Yarrunga up to the Bendeela pondage. ( By Chloe Hart )

System built to expand

The scheme was built in 1977 and designed for double its current capacity.

"We have a lot of the pipeline routes already there, the substation, the switchyard and it means we can develop the expansion much more cheaply than other hydro options," Mr Calabria said.

Two options for the expansion are being looked at, including building a new station next to the current Kangaroo Valley station, which would add 160 megawatts of pump storage.

The scheme has a capacity of 240 megawatts — 80MW at Bendeela and 160MW at the Kangaroo Valley station. ( By Chloe Hart )

The second, more favoured option is to bypass the Kangaroo Valley power station by building an underground station using water from the Fitzroy Falls reservoir, which would increase capacity by 235 megawatts.

The expansion would transform Shoalhaven hydro into a 500 megawatt scheme that could power an additional 80,000 homes.

Origin says the underground option would lessen the environmental and social impacts of the expansion.

At this stage the cost of the project is not yet known.

Where to from here

A feasibility study is in the works and discussions are underway with the Federal Energy Minister Josh Frydenburg, the NSW Minister for Energy and Utilities Don Harwin, and local councils and politicians.

A feasibility study would cost around $5 million and take around six months to complete.

Origin says community consultations will be held to ensure local residents and landholders have a say on the expansion.

Kangaroo Valley's rolling hills and steep descents make it an ideal location to generate hydro power. ( By Chloe Hart )

"We would expect to be [assessing] feasibility in the coming weeks and months, and that would probably be a six month process, so we can be considering a final investment decision early next year," Mr Calabria said.

Origin says the expansion will create hundreds of construction jobs, provide more work for existing employees and possibly create two full time ongoing jobs.

Origin says NEG only scrapes the surface

The energy powerhouse says it supports the objectives of the National Energy Guarantee to ensure retailers provide reliable supply and cut emissions, but says the target set is just a minimum.

"We support more ambitious targets and a transition to net zero emissions by 2050," Mr Jarvis said.

Currently only 10 per cent of Origin's energy generation is renewable, but it wants to triple that by 2020, with goals to produce 1200 megawatts from wind and solar.