The NSW government has given approval for a $32 million hydro-powered battery project near Albury in what will be Australia’s first co-located battery and hydro project.

The battery will be charged by the nearby Hume Hydro Power Station so it can send energy to the grid during peak demand.

The 20MW Battery Energy Storage System (BESS) will be installed by Meridian Energy, which owns and operates the Hume Power Station.

The power station currently has restrictions on the amount of water it can discharge to generate energy and the battery means energy can be stored during non-peak times and released to the market during high demand.

The battery will increase the station’s capacity by up to 35 per cent, Meridian says.

Environment minister Matt Kean says the development will add to NSW’s renewable energy mix.

“As renewable energy becomes a greater part of our energy mix, projects like this will help to support the continued growth of our economy by delivering a modern, cheap and reliable energy grid for the people of NSW,” he said in a statement on Friday.

The report has the support of Albury City Council, with Mayor Kevin Mack saying in a submission to the state government that it was a progressive proposal that would support affordable, clean and reliable energy.

Construction is expected to being this year and the battery is expected to be operational by the end of 2021.