Funds have been allocated to hydro projects in the Hunter Valley, Central Tablelands, Southern Highlands and South Coast to cover private investment barriers and upfront costs.
The funding will go towards pre-investment activities including establishing whether the projects are feasible and developing business cases, NSW Treasurer Matt Kean said on Friday.
"NSW has the most ambitious renewable energy policy in the nation, which is needed to replace ageing coal-fired power stations and build a clean energy future for NSW," Mr Kean said.
"If these pumped hydro projects proceed to construction, they are expected to create more than 2300 jobs and attract $4.4 billion of private investment, which will help grow the economy and support the regions."
Pumped hydro electricity is key to the government's ambitions for creating a renewable energy future and infrastructure jobs in the regions, he said.
The funding, given as part of the NSW Pumped Hydro Recoverable Grants Program, will be repaid to the government if a project reaches a financial close - and could be reinvested into future projects.
Pumped hydro projects require two bodies of water at different altitudes - pumping water uphill using energy generated by sun or wind, and releasing flows downhill to create power during stillness and darkness.
The state has a target of reaching 2 gigawatts of long-duration energy storage by 2030, with hopes the five projects could create close to 1.75GW.
Nature Conservation Council spokesperson James Tremaine told AAP feasibility studies needed to be meticulous in their assessment of natural environments.
"Pumped hydro is critical to the new energy economy but projects must do minimal harm to natural areas," Mr Tremaine said
He stressed new projects must meet the highest environmental standards if they were going to move forward.
"They must not compromise critical water supplies (including) rivers, wetlands, and downstream communities."
Pumped hydro grant recipients:
* Lake Lyell Pumped Hydro Energy Storage in Lithgow - $11m
* Oven Mountain Pumped Hydro Energy Storage in Wollombi - $9.64m
* Shoalhaven Hydro Expansion in Bowral - $5.31m
* Central West Pumped Hydro in Yetholme - $9.44m
* Muswellbrook Pumped Hydro in Muswellbrook - $9.45m
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