"There is a whole range of issues that the South Australian blackouts last week brought to the fore," he said on Sunday.

The pressure on both Canberra and the states over energy security is expected to increase with the planned closure next month of the massive Hazelwood power station in Victoria.

The Australian Energy Market Operator has warned the Victorian government that it needs a plan for the state when Hazelwood closes, saying there could have been more blackouts if the brown coal-fired power station had not been operating during last week's power crisis in South Australia.

With AEMO set to deliver a report this week on last Wednesday's enforced "load-shedding" that led to 90,000 homes and businesses being without power, the regulator warned the situation could have been a lot worse if Hazelwood's 1600-megawatt capacity had been removed from the National Electricity Market.

Hazelwood, the brown-coal power station in the LaTrobe Valley that is owned by French company Engie, is due to be closed next month, with fears about the repercussions for the eastern state power supply. Victoria's coal power plants help prop up SA when its wind farms are unable to produce enough power.

AEMO's acting executive general manager of stakeholders, Joe Adamo, said they were negotiating with the Victoria government for what would happen once Hazelwood left the market.

"The stark reality is given the extreme temperatures and high demand in both SA and Victoria last Wednesday, if Hazelwood was not operating, the strain on the network would have increased and it would have made it harder to manage the NEM given it would have diminished reserves in Victoria," Mr Adamo told The Australian Financial Review.

"Things like the type and location of electricity generation technology, modelling the transition into renewables, the policy framework, inertia and ancillary services and overall network strength within that region are all important considerations as we work together through this transition."


Senator Sinodinos told the ABC's Insiders: "I underestimated the extent of the cost of the transition to greater reliance on renewables, I have to admit.

"I didn't realise the extent to which that increases the volatility of the system, the need to have proper back-up and security of supply.

"That was brought into sharp relief with what happened in South Australia. It's also raised issues about the way the National Electricity Market works, the need for greater competition, interconnectors, we need to create more gas exploration.

"What's needed to be done is we need to calmly sit down, work our way through those issues. This is not an attack on renewables or coal, this is about getting the best energy mix at an affordable price which reduces greenhouse gas emissions. We have an energy security plan we are putting together to help us address those."

Sources say that while the federal government has long sought to persuade the states, including the Coalition government in NSW, to lift their bans on CSG, it is now adopting a new approach, examining potential incentives to the states to assist in reform that would better align farmers' financial interests with gas exploration by different royalty sharing and land agreements.

"We need to get rid of moratorium on gas exploration, whether it is NSW, Victoria, whatever state and we need to do more to encourage competition in that state," Senator Sinodinos said.

The federal government is also believed to be considering to act as a joint venture partner – rather than just fund feasibility studies – in other forms of energy storage such as pumped hydro.

The current Finkel Review into the reliability and stability of the National Electricity Market is expected to examine a range of flaws in the market that were on show over the past few days, going to the effectiveness of price signals in bringing extra capacity to the market.


However, sources say it will also review the contentious question of ultra-supercritical coal – coal that has high output of energy but low emissions. "Yes, of course it is expensive, but we have to look at all options," one source said.

"But you also can't have a conversation about coal unless you have a serious conversation about gas."

Canberra wants to assist the process of re-establishing a "social licence" for CSG, in other words, ensuring that landholders feel part of any process and that they can sense the potential for big monetary rewards at a time when gas prices have been soaring.

The blame game over last Wednesday's blackout continued over the weekend with federal Energy Minister Josh Frydenberg rejecting Labor's claims that AEMO could have directed Engie to turn on their second unit at Pelican Point to provide more power into SA's network.

Mr Frydenberg has asked the Australian Energy Regulator to investigate why energy generators, including Engie, did not enter the market when AEMO warned of low reserves on Wednesday afternoon.

"The Australian government is committed to ensuring secure and affordable energy for all Australians. It is vital that the community have confidence that the rules are being complied with," Mr Frydenberg said.

It comes as the Tomago aluminium smelter returned to normal production after being asked by AGL Energy to reduce its load by 30 per cent or 300 megawatts for almost four hours on Friday to avoid potential blackouts in NSW.