Snowy Hydro's plant at Kurri Kurri, which has just started its testing phase, is designed to run on gas and diesel.

One resident, Marlie Ford told ABC Newcastle that the smell was so pungent, he thought it was a failing electrical device, but eventually, the smell made his eyes water. 

"It was just eye-watering, I've never smelt anything that bad," he said.

"Even with all the windows shut, it just made me feel really sick and nauseous."

CEO Dennis Barnes said in the past week testing took place on one of two turbines, which included testing it on diesel.

"That caused some emissions and some odour, which we're deeply regretful for," he told ABC Newcastle Breakfast.

He also conceded that communication with residents could have been done better, adding that Snowy Hydro would aim to communicate more via social media the next time there is a test. 

"We did do local communications and our near neighbours, but I think we've stuffed up by not going more broadly on social media and on the radio to warn people that we were doing this," he said.

Mr Barnes said the company was working with the NSW Environmental Protection Authority (EPA) in its investigations.

"At the plant itself, the emissions were within our environmental limits, but that doesn't make any difference to the local community when they're smelling and seeing smoke," he said.

In a statement, an EPA spokesperson said the plant was required to conduct continuous emissions monitoring, including during any testing in the commissioning phase.

"Before commissioning works recommence, we will review Snowy Hydro’s updated commissioning plan and discuss additional control measures," the statement read.

"Our investigation into the recent emissions and odours is continuing, including checking whether the station’s emissions limits have been breached."

The plant was commissioned by the former Coalition government as a bridging station during peak times when as coal fired power stations are closed.