Tallawarra Power Station fire

A Transgrid depot near the Tallawarra Power Station on the shores of Lake Illawarra, burst in flames in dramatic scenes after reports of explosions ringing out on Saturday afternoon
Hundreds of thousands of people have been warned to stay indoors as dense black smoke from a burning electricity substation overwhelms residents south of Sydney.

A Transgrid depot at Dapto near the Tallawarra Power Station, on the shores of Lake Illawarra, burst in flames in dramatic scenes after reports of explosions ringing out on Saturday afternoon.

The blaze took the Tallawarra station, which supplies up to 200,000 homes in NSW, offline for two hours, causing customers to go without power on a chilly afternoon.

Tallawarra Power Station fire

Hundreds of thousands of people have been warned to stay indoors as dense black smoke from a burning power station overwhelms residents south of Sydney
The fire, believed to have been ignited when oil supplies caught fire at the Dapto substation, forced major disruptions to Shellharbour Airport 90 minutes south of Sydney.

Fire and Rescue NSW responded to 'numerous' triple-0 calls about explosions at the plant followed by huge plumes of smoke in the aftermath.

NSW ambulance attended the scene, just off Yallah Road, and it was later reported nobody was harmed in either the explosions of the fire.

Hundreds of thousands of Wollongong and Unanderra residents were urged to stay indoors because of smoke from the raging blaze.

'Large volumes of smoke from the fire are impacting the Wollongong and Unanderra areas,' warned Fire and Rescue NSW on social media.

'Residents are urged to stay indoors with windows and doors closed until the air quality has improved.'

The fire service sent 16 trucks and 60 firefighters to the site where it is understood more than 1,000 litres of oil caught on fire.

It is thought the huge fire could burn for up to four days.

High voltage power lines are believed to have been damaged by the blaze.

The ABC reported one transformer at the substation was fully alight while a second was under threat.

The fire was initially reported as at the Tallawarra Power station, a gas-fired power station at Yallah Bay owned by EnergyAustralia.

But the company's spokesperson told Daily Mail Australia Tallawarra is not on fire.

'One of the redundant transformers at Dapto substation has mechanically failed resulting in a contained oil fire,' Transgrid said in a statement.

The fire service sent 16 trucks to the Illawarra substation where it is understood more than 1,000 litres of oil caught on fire

The Transgrid spokesperson said the fire 'will not impact the electricity supply to customers'.

But a statement from Energy Australia said 'The incident resulted in Tallawarra power station coming offline for around 2 hours.'

'The team at Tallawarra safely returned the plant to service at around 5:15pm where we will be there to support the evening peak.'

Transgrid operates and manages the high voltage electricity transmission network in NSW and the ACT.

Despite the health warnings from Fire and Rescue NSW, Transgrid said in its statement 'The smoke emanating from the site is not toxic.'

'It's a biggy,' Fire and Rescue NSW Superintendent Adam Dewberry told the Illawarra Mercury.

'We can't do anything until we get the confirmed power isolated.'

Fire crews were trying desperately to extinguish the blaze on Saturday evening.