Even though an earlier plan to sell off the electricity group was aborted, a recent Productivity Commission report threw its weight behind the privatisation of public assets and the buy comes as the NSW government is preparing to sell its other remaining power sector assets.

Along with operating the Snowy Hydro scheme, it has two peaking power stations in Victoria, although earlier plans for a similar power station in Sydney were shelved some years ago. Snowy Hydro has recently been beefing up its presence in the retail market, moving into parts of NSW beyond its base in Victoria, using the Red Energy label. Peaking power stations are used for short periods of time to take advantage of any surge in wholesale electricity prices.

The purchase of the Infratil assets gives it additional peaking power stations across South Australian and NSW with 165 megawatts of capacity at Angaston, Port Stanvac and Lonsdale in South Australia along with a further plant in the Hunter Valley, NSW. It also includes a site for a potential gas-fired power station south of Sydney.

Additionally, Infratil has  more than 515,000 customers via its Lumo Energy brand which, with Snowy's customer base of more than 400,000, makes it the clear leader of the second-tier energy retailers, lagging only the industry leaders AGL, EnergyAustralia and Origin Energy.

Snowy Hydro will maintain the two retail brands of Lumo and Red Energy, which have different market approaches, Snowy Hydro managing director Paul Broad  said.

"This deal is going to increase competition right across the east coast," Mr Broad said. "The deal will be earnings accretive from day one."

A particular attraction of the deal is the prospects for the power stations in the South Australian market where the lack of generation capacity had made it difficult for Snowy Hydro to build its retail presence given the potential for wholesale prices to surge when temperatures rise in mid-summer if little wind power is available.

Snowy Hydro is expected to move cautiously in transferring the existing Lumo Energy customers across to its own software systems and is believed to have allowed for the transfer to take as long as five years to be completed.

Mr Broad said the acquisition will be fully debt funded.

"Our balance sheet is significantly undergeared and there is significant borrowing capacity."

The group's three main lenders are Westpac, Commonwealth Bank and ANZ Bank, and the deal will not affect the group's BBB-plus debt rating, Mr Broad said.

After shelving earlier plans for a power station in Sydney, Snowy Hydro will gain control of a development site for a gas-fired power station south of Sydney with the Infratil acquisition.

Several years ago, the NSW government said it would privatise Snowy Hydro, although the federal government opposed the move and the plan was shelved. Earlier this year the Productivity Commission called for more public assets to be sold, with the federal government backing the call.