The federal government has failed in its attempt to keep the coal-fired Liddell power station operating longer than planned, and green groups are demanding the coalition now “drop its obsession with coal”.

AGL on Saturday confirmed the Liddell plant in the Hunter Valley would cease operating in 2022 as scheduled despite a push by the Turnbull government for it to keep burning coal until 2027.

The company will replace the power station’s current output with a mixture of gas, wind and solar plants. Pumped hydro will be examined too.

“This plan demonstrates that old power plants can be replaced with a mixture of new, cleaner technology while improving reliability and affordability,” AGL chairman Graeme Hunt said in a statement.

The energy giant said the replacement generation was more affordable at $83 per megawatt hour compared with extending Liddell which would cost $106/MWh.

An independent analysis found extending Liddell’s coal-fired power generation to 2027 would cost approximately $920 million.

The proposed portfolio to replace Liddell will shrink AGL’s carbon footprint by almost 18 per cent.

The Australian Conservation Foundation says Prime Minister Malcolm Turnbull’s attempt to strongarm AGL had failed and the government “must now drop its obsession with coal”.

“Keeping Liddell polluting for another five years was nothing more than a poorly informed thought bubble,” chief executive Kelly O’Shanassy said in a statement.

“What we need is a strong, comprehensive plan that would speed up the retirement of polluting coal plants and accelerate the transition to clean energy.”

Mr Turnbull on Saturday denied AGL had delivered a rebuke.

Instead, he claimed Canberra had simply demanded the company prove shutting Liddell wouldn’t result in a gap in baseload power on the east coast.

“One way to do that is obviously to keep the plant going for a few more years,” Mr Turnbull said.

“(But now) AGL has got a plan which they have produced for the first time which they say will meet that gap.

“It is being examined by (market operator) AEMO now and we’ll look forward discussions with AEMO.”

The prime minister claimed he was “technology agnostic” when it came to energy.

Generators at Liddell will be converted into synchronous condensers.

The union representing workers is thrilled the Liddell site will be repurposed to produce electricity from gas turbines, battery storage and potentially pumped hydro.

“The CFMEU has worked closely with AGL to ensure all existing employees would be able to remain in employment at either Bayswater (power station nearby) or the repurposed Liddell … or take a voluntary redundancy,” mining and energy president Tony Maher said in a statement.

“The need for employment security has been given as much importance as energy security and profitability. We hope it sets an example for others to follow.”