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UPDATE 1-Australia to spend $468 million on controversial gas-fired power plant

* State-owned plant goes ahead despite industry commitments

* Gas-fired plant only expected to run at 2% of capacity

* Decision comes ahead of key by-election in coal region (Adds Snowy Hydro, Climate Council comments, changes dateline)

MELBOURNE, May 19 (Reuters) - Australia’s government said on Wednesday it will build a taxpayer-funded A$600 million ($468 million) gas-fired power plant, arguing it is needed to drive down electricity prices, despite opposition from the power industry.

The government said last year state-owned Snowy Hydro would build a new gas-fired plant if other companies did not come up with plans by April to build 1,000 megawatts of capacity to fill a gap that will be left when AGL Energy shuts its Liddell coal-fired plant in 2023. [

EnergyAustralia, a unit of Hong Kong’s CLP Holdings , has committed to build a 300 MW gas-fired plant and mining billionaire Andrew Forrest has proposed a 660 MW plant, although he has yet to make a final decision. Both would be backed by government aid.

“We were very clear from the start - we will not stand by and watch prices go up and the lights go off,” Energy Minister Angus Taylor said on Wednesday.

The power industry has opposed the government’s intervention in the market, saying such a large plant would not be needed and would deter private investment in renewable power.

Snowy Hydro’s environmental impact statement for the Hunter Power project in New South Wales state says in an average year the plant is only likely to run at 2% of its capacity.

The 660-megawatt (MW) plant will be built in the Hunter Valley, the country’s biggest coal-producing region, which is under threat from the push toward cleaner energy.

A by-election will be held in the region this weekend in which the future of coal mining jobs will be a key issue. Taylor said the Hunter Power project would create up to 600 jobs during construction and 1,200 indirect jobs across the state.

Green groups said it makes no sense to rely on gas, as it is polluting and expensive.

“It drives up electricity prices, it increases emissions at a time when the rest of the world is reducing emissions and it creates very few jobs,” Climate Council spokeswoman Nicki Hutley said.

The government’s move, which fits with its effort to promote gas to fuel a recovery from the COVID-19 recession, comes a day after the International Energy Agency said the world needs to stop funding all new fossil fuel supply to reach net zero emissions by 2050.

$1 = 1.2832 Australian dollars Reporting by Sonali Paul and Renju Jose; editing by Matthew Lewis and Richard Pullin

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