NSW is at risk of long-term blackouts unless energy company AGL firms up its commitment to replace the Liddell coal-fired power station, the federal government has been advised.
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However, Labor says any uncertainty is the result of the Turnbull government not having an energy policy, and AGL says the shortfall will be met.
The Australian Energy Market Operator said in a report released on Friday an extra 850MWs of power are needed to ensure reliability in NSW following the closure of Liddell.
It noted that if all three stages of AGL's proposed post-Liddell plan are delivered "the resource gap will be eliminated".
However, given that AGL has only firmly committed to installing 100MW of additional generation "there remains a significant resource gap of 850MW".
In December last year, AGL outlined plans - at the request of the prime minister - to address a predicted 1000MW gap in electricity capacity following the closure of the 1970s-era power station in 2022.
On Friday AGL welcomed the confirmation from AEMO that its plan addresses the potential shortfall.
"AGL is already implementing our NSW Generation Plan, which proposes a mix of high-efficiency gas peakers, renewables, battery storage and demand response as well as the efficiency upgrade at Bayswater Power Station," it said in a statement.
"Decisions for the investments are staged to enable flexibility to respond to the changing needs of the market and improvements in technology over the next five years."
AEMO chief Audrey Zibelman said if only the first stage of AGL's proposal was delivered there would still be a gap of 590MW "exposing the power system to a high risk of involuntary load shedding".
"AEMO can only include those resources for which there is a clear commitment to construct," she wrote in her review of the plan.
She said the solution lay in the federal, state and territory governments reaching an agreement on the national energy guarantee by the end of 2018.
However, if the national agreement could not be reached, a specific market mechanism should be put in place to find enough generation to replace Liddell via other projects. That should be done in consultation with the NSW government.
Energy Minister Josh Frydenberg said it would be preferable for AGL to commit as soon as possible to stages two and three of its plan.
"The existence of a major shortfall in dispatchable power following Liddell's closure would clearly present an unacceptable situation undermining the stability of the system," Mr Frydenberg said.
The situation made it all the more important for the national energy guarantee to be endorsed by all governments, he said.
Labor energy spokesman Mark Butler predicted either AGL would proceed with further stages of its plan or other companies would fill the gap.
"What concerns me about these reports ... is that the prime minister and minister Frydenberg have a tendency to misrepresent this as AEMO saying there will be a supply gap," Mr Butler told Sky News on Friday.
"That is not what (AEMO) are saying."
He said the report merely identified the size of the gap, and any uncertainty about filling the gap was due to the government being "incapable of putting in place a national energy policy that sends an investment signal to electricity companies for the period beyond 2020".
Australian Associated Press
