The federal government has signed a $1bn deal with South Australia to reduce the cost and boost the reliability of energy supplies.

The prime minister, Scott Morrison, announced the deal on Sunday. It will include a $660m commitment from the commonwealth and $422m from the state government.

It will pursue initiatives that create additional dispatchable generation to help deliver affordable and reliable power, unlock gas supplies and kickstart works on a new electricity interconnector between SA and New South Wales.

“Families and businesses need affordable, reliable power. That is what reduces prices and creates jobs,” Morrison said.

“Australians also want to ensure we are doing everything we responsibly can to combat climate change.

“This means getting more gas into the market to support the increase in renewable solar and wind power coming into the electricity system.

“One works with the other to deliver lower cost, lower emissions and reliable power.”

The deal includes a $400m commitment from the commonwealth to invest in practical technologies to reduce emissions, including hydrogen and carbon capture and storage.

The federal government has also committed $50m to the electricity interconnector while $110m will be allocated to concessional finance for energy storage projects including the use of solar thermal technology.

The deal sets a gas target of an additional 50 petajoules per annum by the end of 2023 and a stretch target of 80 petajoules per annum by 2030.

The energy and emissions reduction minister, Angus Taylor, said the agreement would secure reliable and affordable power for South Australians and would have benefits for the national electricity market.

“The initiatives we are partnering with South Australia on today will help keep the lights on, deliver lower energy prices, strengthen our economy and create more jobs as we rebuild from the coronavirus pandemic,” Taylor said.

“The focus on gas will help South Australia meet its own gas needs and assist efforts to prevent forecast shortfalls in the broader east coast gas market from 2023, as part of our gas-fired recovery.”

The South Australian premier, Steven Marshall, said the deal would coordinate efforts to deliver a hydrogen export industry in South Australia, deliver carbon capture and storage to reduce emissions, deliver the infrastructure needed for electric cars, and generate new revenue for farmers from carbon reductions.

“Put simply, this agreement is going to lower power bills for South Australians and create jobs in the fast-growing renewables industry,” he said.

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