The government says it is "the biggest network battery in the southern hemisphere" and will come online by the time Eraring, Australia's biggest coal-fired power station with a capacity of 2200MW, shuts down.
Treasurer and Energy Minister Matt Kean said on Thursday the State Significant Infrastructure project will "make sure we have the capacity in the system to be able to deal with that (Eraring) closure".
Planning Minister Anthony Roberts said the project would attract $1 billion of private investment into NSW.
"The battery will play an important role in supporting the security of our electricity system and will help put our state on the map as a global leader in energy transition," Mr Roberts said.
It will be built on the now shuttered Munmorah coal-fired power station near Newcastle.
The government said the Waratah Super Battery differs from other big batteries in the National Electricity Market because it acts as a "shock absorber'' for the electricity transmission system, which helps the grid remain reliable during bushfires and lightning strikes.
The battery is being delivered by Akaysha Energy, in partnership with Transgrid.
The announcement comes as 70 workers from coal-fired power stations and domestic thermal coal mines gathered in Sydney on Thursday to discuss the impacts of the energy transition on workers.
They are urging the federal government to provide urgent support.
Mining and Energy Union general president Tony Maher said the government should urgently establish a federal energy transition authority.
"If Australia doesn't get an energy transition authority established in time it would be a moral failure, because it's wrong to expect blue-collar workers to bear the brunt of the nation's climate change action when the costs could easily be shared," Mr Maher said.
Peter Compton, an operator at Mount Piper Power Station near Lithgow, accused governments of pushing for renewable energy projects without consulting frontline workers.
"Coal-fired power station closures are going to have an enormous impact on the grid and need to be planned for," he said.
"Closures are also going to have an enormous impact on our lives and communities, and these outcomes need to planned for too."
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