Australia postponed the shutdown of its largest coal-fired power plant on Thursday, citing the need to use the highly polluting facility to fill a capacity shortfall as the country races to scale up its renewable energy efforts.

The hulking Eraring power station in New South Wales was slated to close in 2025 but has been handed a two-year lifeline by the state government amid a looming energy shortfall.

State Premier Chris Minns said the reprieve would secure reliable energy and electricity "while we transition the workforce and the economy to net zero."

The Australian Conservation Foundation said Eraring was a dirty "coal clunker" that belched out almost 3% of the country's total greenhouse gas emissions.

"Summers in New South Wales are now characterized by unprecedented floods, heatwaves or deadly fires and this extreme weather is exacerbated by extending the life of fossil fuels like coal," the foundation said in a statement.

Around 70% of New South Wales' delivered electricity comes from four aging coal-powered plants, all of which are scheduled to retire in the next 10 to 15 years.

Like many countries, Australia is trying to reconcile its long dependence on fossil fuels with bold ambitions to embrace renewable energy.

Earlier this month, federal Treasurer Jim Chalmers pitched the nation – one of the biggest coal exporters in the world – as an awakening "renewable energy superpower."