AGL is undertaking a $200 million upgrade of the Bayswater Power Station, amid reports of a looming shortage.

The upgrades at the coal-fired plant in Muswellbrook are part of efforts to mitigate an expected 1,000 megawatt shortfall when AGL’s Liddell Power Station closes.

The company says the Bayswater project will boost capacity without increasing emissions.

Existing turbines will be replaced to provide an additional 100MW capacity.

Work should begin by February 2019, and take four years to complete.

The company says Bayswater’s four turbine sets will be replaced and fully operational by 2022, around the same time it will close the coal-powered Liddell Power Station.

But the Australian Energy Market Operator (AEMO) says higher power bills and more blackouts are on the way in the meantime, due to problems in the electricity market.

The regulator says the electricity market is already struggling to provide a reliable supply as big coal stations close, creating an “increasing and unacceptable risk that there will be insufficient capability in the system”.