The funds, provided through the Clean Energy Finance Corporation, will help renewable energy company Neoen design and construct the lithium-ion battery, to be installed north of Geelong.

Using Tesla equipment, it will have a power capacity of 300 megawatts and a storage capacity of 450 megawatt-hours, making it twice the size of the battery at Hornsdale in SA, which was the biggest in the world when it began operating in 2017.

About 250 megawatts from the battery will be reserved for increasing the capability of the Victoria to NSW Interconnector and responding to unexpected network outages.

The company said the battery is on track to be operational before next summer.

The project is expected to create 80 jobs during construction and six full-time ongoing positions.

"After the challenges of COVID-19, this is more important now than ever to support jobs, families and businesses in Victoria," federal Energy Minister Angus Taylor said in a statement on Thursday.

"We are working to ensure electricity prices do not hold Victorian industry back and this project is crucial to that objective."

The Victorian government earlier committed $84 million to the project over 11 years.

Similar to the Ballarat Energy Storage System at Warrenheip, and the Tesla setup in South Australia, the battery will smooth out power fluctuations on the grid and provide emergency electricity in brown and blackouts.

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Last year Victorian Energy Minister Lily D'Ambrosio said the project would create about 80 jobs during construction.

The installation will use Tesla batteries, and will be owned by Neoen and operated by AusNet Services - AusNet's regulation and external affairs executive general manager Alistair Parker said it would "enable more capacity in the network", providing power to 300,000 homes.

"As their price comes down, we expect to see more of them in the system," he said.

The batteries are required as the state's electricity grid becomes more decentralised and renewable generators come online.

Last year the state government argued the wins from the battery would be passed onto customers; "consumers will pay for use of the battery through their power bills, but the reduction in wholesale energy prices delivered by the battery will mean that Victorians pay less for their power - with independent analysis showing that every $1 invested in the battery will deliver more than $2 in benefits to Victorian households and businesses".

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