The South Australian government will spend half a billion dollars building the country's largest battery storage project, along with a new state-owned, gas-fired power plant.
The $550 million spend comes nearly six months after a statewide blackout that left over a million people without power, and sparked a political debate over the reliability of wind and solar energy. The state government will invest the money in generation and electricity storage, making use of both renewables and fossil fuels.
In an Australian first, a 100 megawatt battery will be constructed to store power from green energy sources.
The battery will be built by the private sector, with support from a government renewables fund.
It will be the same size as the one proposed by Elon Musk, the billionaire CEO of the technology company Tesla.
But the bulk of the money will go to a brand new gas power plant that will be government-owned and operated - a system not seen since the network was privatised in the 1990s.
Premier Jay Weatherill said the market has become overly reliant on ageing power stations.
"Fundamentally here we've got market failure. The private sector is either not investing in new generation, or not investing in maintaining existing generation. That's why governments need to step up."
The battery will be paid for through a new $150 million dollar renewable technology fund.
It will be constructed by the private sector, but it is not yet known which company will get the contract.
Billionaire entrepreneur and Tesla CEO, Elon Musk, has spoken with Jay Weatherill about building the battery unit, but several Australian firms have also expressed interest.
Mr Weatherill said it will make South Australia an innovation destination.
"We've created a new fund that will not only create the jobs and opportunities that come here to South Australia to meet that need, but it sends a message to the nation and the world that we are open for business."
“All of the startups and entrepreneurs looking for a place to come, that is interested in new ideas, with a government that is prepared to back them in, they will come to South Australia first," he said.
The announcement follows months of criticism from the federal government.
Ministers accused the South Australian Labor government of what they described as recklessly pursuing a 50 per cent renewable energy target, just because they’re afraid of coal.
Federal Energy Minister, Josh Frydenberg, said the new spending on a gas power plant proves the premier had it wrong.
"Jay Weatherill made a $550 million admission of failure. Going it alone created South Australia's problems, and going it alone won't fix South Australia's problems."
The premier said South Australia could not afford to wait for a national plan.
Malcolm Turnbull is due to hold crisis talks today with the heads of the country's biggest gas companies, including Shell and Origin Energy.
They'll be discussing a recent report from the national market operator that shows Australia is on track for widespread gas and electricity shortages within the next two years.
Experts have said Australia has enough gas to meet local demand, but providers continue to favour lucrative exports.
Rod Sims, chairman of the Australian Competition and Consumer Commission, said the industry needs to do more to help satisfy the domestic market.
"I would say they'd be well-advised to make sure they see if they can divert more gas to the domestic market at this time because they do have to watch out for their social licence to operate."
Last week's report from the Australian Energy Market Operator suggested the federal government could take steps to divert more gas from exports to the domestic market.
Tony Wood from the research and policy group, the Grattan Institute, said the federal government should consider new regulations.
"The prime minister is meeting with the major gas companies this week to look at the options and I think, again, this is one of those cases where it's absolutely in the interests of the companies themselves to come up with some sensible solution," he said.
“If they don't, the government will be forced to intervene and what the government might do might make the companies very unhappy indeed. So, now's the time for them to put in some proposals for the government."