Prices have hit the National Electricity Market limit of $13,800 a megawatt hour several times in the state in recent months. That makes industrial users uneasy and leads to speculation the government may have to pay thermal-coal generators to provide standby capacity.

"The signal in that market is you actually need more thermals in reserve," Mr Zema told a Committee for Economic Development of Australia lunch in Melbourne.

He said rather than being like Germany, which also has a large share of renewable generation and is fretting over security of supply, South Australia is "more like Portugal - it's at the end of the grid".

"So if they are going to go completely renewable they are going to rely more and more on the interconnectors for system security."

The Delta Lithgow power station. Nic Walker

Intervening to balance the market

Mr Zema said the Energy Market Operator was intervening to balance the market to avoid blackouts in South Australia while the existing interconnector is upgraded, causing outages and complaints from industry.

Peter Dobney, the head of energy and resources at packaging company Orora, told the lunch South Australia "has become a basket case for large industry energy users" and the outages were costing industry millions of dollars.


But Mr Zema said the upgrade had to be completed before the summer of 2016-17 because Alinta will close its Northern and Playford B thermal power stations in 2016, dropping15 per cent of current capacity in South Australia.

He said the Energy Market Operator was purchasing frequency controlled ancillary services or FCAS "to stop SA actually going black if the interconnector drops out".

"How much do you want to pay for system security in SA because that's what we are buying," Mr Zema said. "If we don't buy FCAS and the system trips, we lose the whole state."

Mr Zema said Germany, Spain and Italy were dealing with a similar problem by relying on interconnectors with France, which has a large surplus of nuclear power. He said France is planning six new interconnectors worth $250 billion.

"When you ask about the business case, they say 'don't worry about the business case - they'll make money'" he said.