The federal government announced yesterday it would provide $30 million to Newcastle University for the $42 million project.

State Minister for the Hunter Jodi McKay said the institute would play a key role in running the recently announced, $100 million Smart Grid Smart City project in Newcastle.

"It will have the potential to make a real and substantial contribution to sustainable energy use on both a national and global scale," she said.

Hunter Business Chamber chief executive Peter Shinnick said it was huge news when combined with the new, $90 million Hunter Medical Research Institute building, which is set to open in the grounds of John Hunter Hospital in 2012.

"It's created quite an interesting hub of research and development activity in the Hunter," he said.

"That attracts industry and that attracts business to the Hunter."

Newcastle Greens councillor Michael Osborne said it was a great opportunity to be at the forefront of renewable technology research, but said carbon storage research was a "waste of time" because the process was "never going to be cost-effective".

The general manager of Corky's Carbon Consultancy in Mayfield, David Cook, used to work at the BHP laboratories and welcomed the site's addition to the university.

He said the institute would complement the commercial field and help train people to work in the private sector.

"We've got to get smarter as a country and smarter as a region," he said.

"The more research we can do in town the better."