But the funding could face a challenge in the Senate if the Greens seek to disallow the regulations behind it.

The money will support early works on Australian Industrial Power's 635MW Port Kembla power station, which will also be hydrogen-capable, as it progresses to final investment decision.

Energy Minister Angus Taylor said the project would play a crucial role in supporting reliable electricity supply in NSW.

The Australian Energy Market Operator has forecast up to 19,000 megawatts of dispatchable capacity such as gas will be required across the national electricity market to support record growth of renewables.

Mr Taylor said the government would work with AIP to assess the project for support through the Underwriting New Generation Investments program.

The government is seeking a pipeline of such projects as older coal-fired generation winds down.

The plant and associated work on the Port Kembla import terminal is expected to generate around 850 direct jobs.

"New gas supply and generation will help re-establish a strong economy and make energy more affordable for families and businesses, while complementing the world-leading levels of renewables in Australia," Mr Taylor said.

The government has made the grant a disallowable instrument, meaning political parties could overturn in parliament if they can muster the numbers.

It comes as the latest Australian energy statistics show gas consumption rising four per cent in 2019/20.

In total, gas provided 27 per cent of Australia's energy mix in 2019/20 and was the most-used energy source by the manufacturing sector (42 per cent).

Renewables continued to increase as a share of total generation in calendar year 2020, rising to 24 per cent, up from 21 per cent the previous year.

Energy consumption fell by 2.9 per cent in 2019/20, largely driven by a nine per cent drop in the transport sector due to the impact of COVID-19 restrictions on air and road travel.

Australian Associated Press