One of six areas earmarked around Australia's coast, Federal Climate Change and Energy Minister Chris Bowen declared the finalised zone on Wednesday after consultation with local leaders, industry and community groups.

The Southern Ocean zone, located 15km to 20km off Victoria's coast near industrial Portland, will span 1030 sq km rather than the initially slated swathe of more than 5000 sq km.

No longer bringing the capacity to generate up to 14.6 gigawatts - the equivalent of three coal-fired plants - the Portland zone will generate up to 2.9GW of offshore wind, or enough to power two million homes.

Announcing the decision with Victorian Energy Minister Lily D'Ambrosio, Mr Bowen said the zone had the potential to create "thousands of new, high-value jobs and help secure cleaner, cheaper more reliable energy" for regional Victoria.

The declared zone avoids South Australia's lucrative rock lobsters after the state told the federal government to curtail the idea of a wind farm zone stretching from Warrnambool in Victoria to the Limestone Coast region.

Ms D'Ambrosio said the lower energy generation from a smaller Southern Ocean wind zone would be offshore by an already declared zone of 15,000 sq km off the coast of Gippsland.

"If it's all full it can give us about 10GW of offshore renewable energy ... five times more than what we actually need," she said.

Victoria is going to auction for Australia's newest industry to generate at least 2GW for 2032, with state targets requiring 4GW by 2035 and 9GW by 2040.

Mr Bowen said the latest zone would be important for the region, the broader electricity grid and Victoria's largest energy customer - the Portland aluminium smelter.

Alinta Energy has proposed a $4 billion 1GW Spinifex development to power the smelter with green energy.

Other proponents in the zone include the 2GW Cape Winds, Flotation Energy's 750-megawatt project and Green Energy Partners' 1GW development, according to a project tracker.

The Southern Ocean zone would bring 1740 jobs to Portland and surrounds during construction, as well as 870 ongoing operational jobs, the ministers said.

But the Australian Manufacturing Workers Union reiterated its call for rules for local content, including manufactured goods and local steel for wind towers, instead of equipment from China.

The decision to significantly reduce the size of the wind zone answered concerns of environmental groups about the impact on marine life, including migrating Endangered Blue and Southern Right whales.

The wind zone will work around shipping routes, the ecologically significant Bonney Upwelling that brings cold nutrient-rich water to the sea surface and Deen Maar Island's migratory parrots.

Victoria is aiming for "first wind" by 2030 to decarbonise a coal-dependent electricity grid, with all of Australia's coal plants due to close over the next 12 years.

Friends of the Earth spokesperson Pat Simons said the Southern Ocean decision demonstrated that an ecologically sustainable offshore wind industry was possible.

Australian Associated Press