The federal government has reached an agreement to buy the stakes held by NSW and Victoria in the Snowy Hydro project for $6 billion.
The agreement allows the Turnbull government to proceed with its $4.5 billion plan to expand Snowy Hydro to benefit the east coast electricity grid.
"The historic agreement will generate more reliable energy, cheaper electricity, better infrastructure and more jobs for NSW and Victoria," Mr Turnbull said.
NSW will get $4.154 billion and Victoria $2.077 billion according to the size of their stakes, but they will have to spend the money on "productive infrastructure", such as road and rail projects that will boost their economies.
NSW Premier Gladys Berejiklian vowed to spend the money outside the cities.
"This will create an investment bonanza in regional NSW with every cent of the proceeds going to rural and regional NSW," she said.
"Not only have we unlocked billions for infrastructure in the regions, but it paves the way for the nation-building Snowy 2.0 project."
Victorian Premier Daniel Andrews praised the historic agreement.
"This is a historic deal that's good for Victorian households, and good for our economy, as we continue to build the infrastructure and create the jobs our state needs for the future," he said.
Federal Energy Minister Josh Frydenberg said the money could go to rail, roads and bridges, and insisted the deal will guarantee Snowy Hydro stays in public hands.
"Nobody can bind future governments but I don't think it's in the interests of any future governments, whatever their political persuasion, to do anything but keep this in public hands," he told ABC radio on Friday.
Labor leader Bill Shorten said he wanted to see the business case for the "$6 billion of federal taxpayer debt".
The government needed to provide long-term policy certainty to boost renewable energy investment and drive down prices, Mr Shorten said.
"Mr Turnbull needs to make up his mind - is he for the future and lower prices and renewable energy or ... just a few 'Washington monuments projects' which he likes to fly around and likes to be photographed visiting?" Mr Shorten told reporters in Devonport, Tasmania.
Australian Associated Press