The billion dollar Oven Mountain Pumped Hydro project, planned near Armidale and Kempsey, is currently undergoing a $2.2 million feasibility study conducted by Australian Renewable Energy Agency.

The project is a 'off river' development located on private land near the Macleay River and is expected to provide up to 12 hours of storage.

As part of the project, upgrades to up to 60km of existing roads between Armidale and Kempsey will be required to allow for safe construction and operation access throughout construction.

Minister for Water and Oxley MP Melinda Pavey said the project would be an essential part of the local future water infrastructure.

"The project will include the construction of two reservoirs, tunnels and a new underground power station, creating jobs and critical water infrastructure with the potential to operate as a water source for firefighting and water security for Kempsey," Mrs Pavey said.

"The infrastructure will enable water from the lower reservoir to be pumped into the upper reservoir using excess power from other renewable energy projects. It is then released to generate up to 600MW of hydro power during periods of peak demand," she said.

New England MP Barnaby Joyce and Energy and Emissions Reduction minister Angus Taylor have also welcomed the announcement and said the Coalition's early investment has made it a reality.

The study is currently determining how the proposed facility could support system strength in Queensland and northern NSW by storing and enabling renewable energy generation.

The study is also examining how much more energy investment would be unlocked in the region as a result.

If proven feasible, it will create anywhere from 600 to 1000 jobs during construction, with a further 30 ongoing jobs once the plant is completed and commissioned.

The closed-loop or off-river system would also boost the water security of Kempsey, located about 70 kilometres to the south-east of the freehold site.

Mr Joyce thanked the Coalition Government's early investment, pumped hydro energy storage in the New England Renewable Energy Zone could be a reality.

"We've made massive investments in New England in renewable energy, in fact we're one of the biggest renewable energy hubs in Australia," Mr Joyce said.

"Likewise, others have talked about the use of this water resource for years and I'm making sure we are taking the first steps to getting it done."

Mr Taylor said pumped hydro projects like Oven Mountain can help to firm up and balance the grid as increased levels of intermittent renewable energy generation such as wind and solar come online.

The project would use two natural granite basins as a battery, pumping water uphill with surplus power and converting gravity into energy during an electricity shortage.

With 600 megawatts of capacity and six hours of generation, the scheme would compliment existing renewable power generators in the area.