THE commonwealth has withdrawn $100 million in funding for a new Victorian power station and the state government is considering whether to pull the pin on its $50 million grant for the project.
The federal government on Friday said it would not proceed with funding the dual gas project after operator HRL failed to meet required conditions set out in the funding deal.
Resources and Energy Minister Martin Ferguson in February gave HRL a further six months, until June 30, to meet the criteria to receive the $100 million grant.
"It has not done so and, accordingly, the funding agreement between HRL and the Australian government will be terminated," Mr Ferguson said in a statement on Friday.
Green group Environment Victoria said the government's decision to withdraw funding would likely spell the end for the Latrobe Valley project.
"This is likely to be the final nail in the coffin for the HRL proposal, and for all new coal-fired power stations across Australia," Environment Victoria campaigns director Mark Wakeham said in a statement.
Mr Wakeham called on the Victorian government to withdraw its $50 million grant for the project.
Premier Ted Baillieu said he had only learnt of the federal government's decision on Friday afternoon and the government would need to assess whether to withdraw its grant.
"Some money has been advanced already and we will be making an assessment of that," he told reporters.
"Obviously there is a question there for HRL themselves as to what they will now do."
HRL Limited subsidiary Dual Gas stopped work on the project in April despite winning a legal battle to double the plant's size.
The Victorian Civil and Administrative Tribunal in March gave Dual Gas the green light to build its 600-megawatt plant but said works could not begin until an equivalent amount of higher greenhouse gas emitting electricity generation was retired.
Dual Gas said the decision effectively put the project's future in the hands of the federal government, which is seeking to phase out 2000 megawatts of high pollution power generation capacity by 2020.