The Eraring coal power station near Newcastle, owned by Origin Energy, was set to close in 2025 as part of the state's move towards renewable energy.
But the state government will now "engage with Origin" to seek an extension of the plant's life span amid concerns new green energy projects wouldn't be delivered quickly enough to supply the energy gap left by the power plant.
It comes after the Electricity Supply and Reliability Check Up report recommended extending the life of the power station.
"One of the biggest challenges facing NSW is ensuring we can keep the lights on while managing the biggest change in energy mix and consumption in the shortest period of time in our nation's history," Premier Chris Minns said.
Energy Minister Penny Sharpe said 70 per cent of the state's energy is currently supplied by coal as plants begin to close over the next 10 to 15 years.
"The check-up makes it clear that the case for Origin Energy to extend its time frame for Eraring is there, as does the recent AEMO report on reliability," she said.
"We don't want coal fire to be open one day longer than it needs to and not one extra cent than it needs from the people of NSW."
Sharpe said Origin has its own profit-driven incentives to keep the plant open and it isn't "entirely" the decision of the state government.
She said the government will continue to persevere to get renewable projects completed to quicken the process of closing coal-fired power but for now it accepts the need for Eraring to stay operating.
The report made 54 recommendations and the government accepted 43 in full, four in part and three are already underway.
The government will introduce a roadmap to ensure coal-fired power retires quickly and the state's households and businesses have enough renewable energy, transmission and storage to replace it quickly.
It will also implement an Energy Security Target Monitor to scrutinise the remaining private coal-fired power stations and the plans for retirement.
"That's our cop on the beat in NSW who's going to be in NSW's interest working with coal-fired power stations as they seek to exit to make sure we have all the information we need, we genuinely understand what's going on with reliability and we smooth the bumps of the transition as much as possible for households and consumers," Sharpe said.