The company told the ASX this morning that work would begin on the 210MW Barker Inlet Power station in the third quarter of this year, with completion expected in early 2019.

The gas-fired power station will replace two of the four Torrens A turbines, which will be progressively mothballed from July 2019.

AGL chief executive officer Andy Vesey said the new station would improve the reliability and security of supply in South Australia – and credited the State Government’s electricity plan for giving him confidence and certainty.

He said the reciprocating engine power station was more fuel efficient and less carbon-intensive than the existing 50-year-old plant.

Vesey also indicated that AGL might make other new investments in South Australia.

“We will continue to monitor the needs of the market and anticipate deploying further investment as opportunities arise,” he said.

The 12 units at the new plant will be capable of operating at full capacity within five minutes of starting up, AGL said, “providing a rapid response to changes in renewable generation supply”.

Today’s announcement comes despite a warning in April that AGL had gone back to the drawing board on investment plans for South Australia after the State Government announced the development of its own gas power station.

The Government insists that the $360 million station, which is out to tender, won’t compete in the market, but will instead provide emergency supply.

However, in early April, Vesey said the Government’s plans had derailed AGL’s previous blueprint for South Australia.

“You could hear the sound of shredding paper,” Vesey said.

“Because our blueprint was … well. I don’t know what happens to a blueprint that’s never going to see the light of day … so we’re rethinking now.”

Today, he said the announcement indicated AGL’s confidence in the South Australian market.

He said any government move that gave the company policy certainty was good. The State Government’s electricity plan had given AGL confidence and direction, allowing it to reshape its investment to focus on a more efficient plant which was able to support energy security.

The plant could have battery storage connected to it, he said.

Vesey didn’t promise cheaper prices, because that depended on the entire market, but he said the new plant would offer greater price certainty and more competition.

Premier Jay Weatherill seized on the AGL announcement, saying it was “proof positive” that the State Government’s electricity plan was working.

He said it was the first investment in new power generation in South Australia since 1999.

“This is a very important day for our state,” he said.

“Their (AGL’s) investment decision today is a vote of confidence in the South Australian economy. It’s also a vote of confidence in the energy plan. It’s given them the security they need to take a very big investment decision.”

Weatherill said 200 jobs would be created during the construction phase.

The State Liberals called on the Government to put on hold its plans for a state-owned gas-fired plant.

“AGL’s investment in a gas powered generator is further evidence that the Weatherill Labor Government’s plan was conceived in panic, without consulting the industry, and without properly considering the best interests of South Australians,” said shadow energy minister Dan van Holst Pellekaan.

“In April Jay Weatherill accused AGL of screwing South Australian power consumers and now he’s planning to stand with them to take credit for their investment.

“The State Liberals welcome AGL’s announcement but we are extremely concerned that power prices will continue to rise.”