The Tasmanian, Victorian and Commonwealth governments have reached a long-awaited funding deal to build the second Bass Strait underwater electricity interconnector, known as Marinus Link.

A loan scheme will make up the majority of the financing for the estimated $3.8 billion power cable, with the three governments jointly chipping in 20 per cent equity. 

The Tasmanian and Commonwealth governments have long supported Marinus Link and funded feasibility studies, but the Victorian government's position was uncertain.

With a state election coming up, Premier Daniel Andrews has finally agreed to help fund Marinus, locking on Commonwealth support for a range of other energy projects.

Prime Minister Anthony Albanese signed the funding agreements with Mr Andrews and Tasmanian Premier Jeremy Rockliff yesterday.

A final investment decision on the project still needs to be made in late 2024.

Federal Energy Minister Chris Bowen told ABC Radio National using the Clean Energy Finance Corporation (CEFC) would provide less risk for taxpayers.

Joint ownership of power link

The Australian Energy Market Operator (AEMO) this year, once again, listed Marinus Link in its top five priorities.

The project will see two 750-megawatt undersea cables between Tasmania's north-west and Victoria's Latrobe Valley, giving the mainland greater access to Tasmania's Battery of the Nation renewable energy projects.

The first stage could be built by 2028-29, and the second by 2030-31, involving extensive undersea works.

Each of the three governments will take on an ownership share of the completed project.

They will contribute 20 per cent, while the remaining 80 per cent will come via a concessional loan from the Commonwealth's Rewiring the Nation program, which uses the CEFC.

The funding agreement also includes up to $1 billion of "low-cost debt" from Rewiring the Nation to fund Tasmania's Tarraleah Power Station redevelopment and Lake Cethana pumped hydro project.

More debt with the CEFC will be used to fund network links between Cressy, Burnie, Sheffield, Staverton and Hampshire in the Tasmania's north-west.

Who benefits from the link?

Battery of the Nation and Marinus Link have been on the cards since 2017 — but there's still little detail on how they would impact Tasmanian power prices.

They're also reliant on Tasmania increasing its wind energy generating capacity.

Victoria Energy Policy Centre director Bruce Mountain said he was not overly concerned with the level of debt being taken on via the CEFC, given the Commonwealth's triple-A credit rating.

But he believed it was a huge risk for Tasmania by further linking prices with the mainland.

He said as Victoria increased its renewable energy capacity and battery storage, Marinus Link didn't make sense.

"The cable is extraordinarily expensive, and building wind farms in Tasmania is roughly comparable to building wind farms in Victoria. You can make energy for much the same cost, just on the energy component," Professor Mountain said.

"In Tasmania, there appear to be pretty major impacts on the wildlife and the natural areas that do not exist in the same way on the mainland.

But Tasmanian Energy Minister Guy Barnett said the agreement was a good deal for the state.

"By working together, we have been able to achieve a solution that will see, once Marinus Link is built, Tasmanian customers to pay no more than 15 per cent of estimated total project costs across both the Marinus Link and North-West Transmission Developments," he said.

Mr Albanese gave a guarantee that Tasmanian power prices would be cheaper with Marinus.