The planned upgrade of the Loy Yang B power station in the Latrobe Valley comes as its majority owner, Engie, prepares to shut down the Hazelwood plant and coal mine in March.

The Environment Protection Authority (EPA) has granted "works approval" to upgrade turbines at the plant, which will result in the burning of an extra 400,000 tonnes of coal each year.

Loy Yang B provides about 17 per cent of Victoria's energy needs.

The EPA insists it has imposed strict conditions on the power generator, so there will be no additional detrimental impact on the environment.

EPA development assessments manager Tim Faragher said the decision allowed higher-efficiency turbine blades to be fitted to the power-generating units.

He said the new turbines would improve power generation capacity 8.6 per cent but decrease the intensity of emissions by 5 per cent.

"The upgrade will make Loy Yang B the least greenhouse-intensive brown coal-fired power generator in Victoria," Mr Faragher said.

He said at least 114 megawatts of coal-fired electricity generation capacity had to be retired before the upgrade could proceed. However, the closure of Hazelwood would satisfy that reduction.

Hazelwood produced about 13 per cent of Victoria's emissions and up to a quarter of its electricity.

Environment Victoria chief executive Mark Wakeham said the EPA's decision was "extremely disappointing".

The plant's expansion would make it harder for the state government to reach its target of zero emissions by 2050, he said.

"If Victoria is to keep its commitments to contribute to global efforts to stay below two degrees of warming, brown coal-power stations need to be phased out urgently," Mr Wakeham said.

The EPA confirmed that burning the additional coal would result in a 4 per cent increase in carbon emissions at Loy Yang B.

But Environment Minister Lily D'Ambrosio said the decision meant lower emissions for Victoria.

Latrobe Valley community group Voices of the Valley has also raised concerns about the expansion. The group's president, Wendy Farmer, said the power station's pollution allowance was too high.

Engie welcomed the move, saying the upgrade would improve the station's efficiency and "increase operating flexibility".

The upgrade will occur in 2019 and 2020 during "planned major outages". In a community update issued before the approval, Engie described Loy Yang B as one of the most efficient power stations in the Latrobe Valley.

"The new turbine design for the retrofit of the existing turbines will result in further improvement," it said.

Loy Yang B employs about 150 full-time staff. It is supplied with coal by a neighbouring mine.

Friends of the Earth criticised the expansion, saying it would prolong coal generation when urgent action was required to tackle climate change.

"It's time to bring the EPA into the 21st century so it can play a key role in tackling climate change," the group said.

It has previously been reported that Engie hopes to sell Loy Yang B.