The nation's energy ministers have agreed to set up a scheme to boost investment in renewables and make the power system more reliable.
The capacity investment scheme - agreed at a meeting of federal, state and territory energy ministers in Brisbane on Thursday - will aim to make sure there would be a reliable supply of renewable energy, regardless of conditions in the market.
The scheme, which is set to provide $10 billion in investments for renewables, will be underwritten by the federal government.
It would pay electricity generators to have stand-by power available, with the aim to ensure an orderly transition away from fossil fuels and incentivise investment in renewable projects.
Energy Minister Chris Bowen said the scheme would be a big step forward.
"It's a 'keeping the lights on' mechanism, you've heard us talk about it many, many times, it's been in the too-hard basket for a long time," he said in Brisbane.
"This is a sensible, carefully designed mechanism, which will unleash investment in clean dispatchable energy right across Australia."
A capacity tool had been prepared for the former coalition government but was criticised as going too far in extending the life of ageing coal-fired plants.
Mr Bowen said the capacity scheme would complement existing state and territory schemes.
"We need to build more sovereign capability. We need to have plans to deal with supply chain issues," he said.
"We desperately need storage in the grid, so the criteria (for the projects) is very clear."
While further details on how the scheme will run are yet to be announced, it's estimated the first auction as part of the capacity mechanism will take place in 2023.
It's expected at least six gigawatts will be generated as part of the scheme.
Queensland Energy Minister Mick de Brenni said the progress in agreeing to the mechanism was historic.
"What we have decided to do is accelerate sensible market reforms and investment in new energy storage and the grid," he said.
"This is about prices because only when the market is dominated by clean, renewable energy will we see wholesale energy prices come down permanently."
NSW minister Matt Kean said the steps were needed to make the energy grid more reliable.
"We know there are huge challenges with this transition, but a non-negotiable is ensuring that we keep the lights on during the transition and that's exactly what will happen as a result of today's decision," he said.
