The Berejiklian government has granted Santos an extension of royalty-free gas for a power station fed by its controversial Pilliga coal seam gasfield, a move that went against their own department's advice and could cost the state's coffers millions of dollars.

The company's Wilga Park power station has recently been granted a further 1000 days free of royalties for gas supplied from its Tintsfield and Dewhurst wells near Narrabri.

A Santos operator looks on at the company's Wilga Park power station near Narrabri in northern NSW. Credit:Bloomberg

The Planning Department said gas extracted during exploration did not attract royalties. The NSW legislation also allows exemptions for the use of gas in power plants rather than being vented or flared.

"This is to ensure sustainable use of resources during exploration only," a department spokesman said. "The regulation recognises that it is in the broader public interested to allow gas that would otherwise be 'wasted' to be used for other beneficial purposes, such as electricity generation."