Attempting to tie an electricity price-cap guarantee to a deal extending the life of the nation's largest coal-fired power station was "fanciful", a senior NSW minister has said.
Wholesale power spot prices in NSW rocketed above $5000 per megawatt hour 19 times in May and June amid unscheduled disruptions, feeding into fears of increased unreliability in future years.
It comes after the state government penned a deal with energy giant Origin to keep the ageing Eraring coal-fired power station open until 2027, costing the state up to $450 million.
At a budget estimates hearing on Thursday, deputy NSW Liberal leader Natalie Ward questioned why a guarantee was not sought from Origin to keep power prices low.
"That's not the way that works," Energy Minister Penny Sharpe replied.
"This idea that we could limit how much they (charge) without there being compensation, is fanciful.
"I would remind you that the previous minister (Liberal Matt Kean) suggested that any deal with Eraring could cost between $1.6 billion and $3 billion."
Ms Sharpe said writing a price ceiling into the deal was not possible due to how the national market operated.
But the Eraring extension covered a reliability gap that would stop blackouts and longer-term price spikes for households and small businesses, she said.
Recent price spikes, above the average of $300 per megawatt hour, were in part due to coal stations breaking down and exiting the market unexpectedly.
The disastrous explosion in Queensland coal station Callide had also played a role, Ms Sharpe said.
The Australian Energy Market Operator on Thursday noted that the two-year Eraring extension had helped to improve reliability in the power grid.
However, Ms Sharpe ruled out buying back Eraring, which is located on the banks of Lake Macquarie, or signing a deal beyond 2027 to keep its doors open.
The existing extension deal has been resoundingly criticised by environmental groups and renewable-energy advocates, although government-commissioned modelling predicts it will have negligible impact on renewable and storage investment.
Delaying the coal plant's closure would also slash wholesale prices by up to a third in the first year, the modelling released earlier in August said.
