The Australian Competition and Consumer Commission (ACCC) has knocked back the New South Wales government's plan to sell its biggest generator.

The Treasurer Mike Baird announced last month that the government would sell Macquarie Generation's two coal fired plants in the Hunter to AGL for $1.5 billion.

But ACCC Chairman Rod Sims says if the deal went ahead, it could reduce competition.

“The proposed acquisition would result in the largest source of generation capacity in NSW being owned by one of the three largest retailers in NSW," he said.

"With this acquisition the three largest retailers in NSW would own a combined share of up to 80 per cent of electricity generation capacity.

"This is likely to raise barriers to entry and expansion for other electricity retailers in NSW and therefore reduce competition."

Mr Baird says the power deal is now off but there will not be a fire sale.

"It is very clear we are not going to undertake transactions where we sell assets for less than they are worth and that should give some confidence to the people of NSW," he said.

"We are doing everything possible to release capital to get on with infrastructure but we are not going to do it at any cost.

"We are not going to do it where assets are sold for less than they are worth."

The money from the sale would have gone to pay for infrastructure in NSW.

The government will now review the ACCC's decision before deciding on its next steps.

Keep power prices down says union

The Electrical Trades Union's Adam Kerslake says the ACCC has made the right decision.

"It is time for Mike Baird to stop trying to sell out the people of NSW for a quick buck," he said.

"Instead [he should] commit to retaining Macquarie Generation in public hands so that it can continue to provide effective competition in the sector and keep down power prices.

"If the O’Farrell Government was fair dinkum about delivering the best outcome for the people of NSW they should never have tried to sell Macquarie Generation in the first place."

ACCC 'saved state from a bad deal'

The State Opposition says the Treasurer has badly bungled the attempted sale of the state's largest electricity generator.

Shadow Treasurer Michael Daley, says the ACCC has saved the state from a bad deal which the Treasurer was going to allow.

"Consumers in NSW might well say today thank God the ACCC is looking out for our interests because Mike Baird and Barry O'Farrell surely are not," he said.

"Let's make no mistake about this, even after the ACCC said this sale was likely to see electricity prices rise, Mike Baird and Barry O'Farrell were still determined to press ahead."

Greens energy spokesman John Kaye says the sale should not go ahead at all.

"The O'Farrell government should abandon privatisation," he said.

"If they can't find a bidder who can give them enough money to make it worthwhile for them and who won't at the same time become a dominant market player they should get out of the business of privatisation. There's nothing wrong with Macquarie Generation remaining in public hands."