AGL's shutdown of the Liddell coal-fired power station is a win for renewable energy and lower emissions, but don't expect a steep fall in prices.

The Australian energy giant over the weekend confirmed its plan to shut its Liddell coal-fired power station in 2022 and replace it with a mix of renewable energy sources and gas peaking power.

Of the eight terawatt-hours of annual output now supplied by Liddell, six will be replaced by renewables, one by gas, and one from other sources including an upgrade of its Bayswater coal-fired power station.

“This plan sees them align with the National Energy Guarantee, so it gives confidence to the market and those concerned as the Energy Security Board carries out its review,” Grattan Institute Energy Director Tony Wood said.

“This is the perfect example of a technologically neutral response to help the transition to a low emissions future,” Mr Wood said.