Treasurer Scott Morrison has warned energy giant AGL its plan to replace the coal-fired Liddell plant must include a commitment on power prices and reliability.
AGL has promised the government it will come up with a plan by early December which would either involve keeping Liddell open for five years beyond its 2022 closure date, selling the plant or finding alternatives to the estimated 1000MW shortfall in power.
However, Mr Morrison said the government was expecting a comprehensive plan from the company.
"I tell you what it's got to do - it can't just fill the gap in terms of the amount of energy that needs to be supplied," Mr Morrison told Sky News on Monday.
"It's got to do it in a way that is both affordable and reliable, together with the other capacity commitments. That's a pretty big question for them to come back to us on."
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Senior figures within the Turnbull government believe keeping the 50-year-old Hunter Valley plant going is the best option, even if it means taxpayer subsidies being provided.
Labor frontbencher Andrew Leigh said keeping Liddell open did not amount to a long-term solution to Australia's energy challenge.
"The government's own chief scientist says we should have a clean energy target," he said.
Meanwhile, a key climate and energy adviser to the former Labor government says the Turnbull government should legislate both strong and weak carbon reduction targets to break the impasse in climate policy.
Professor Ross Garnaut says long-term energy policy needs a political consensus across Labor and the coalition.
The solution lies in legislating for a strong CO2 target in line with Australia's Paris climate agreement commitments and a second "hopefully not too weak" target.
If wholesale electricity prices stayed the same, the government would pursue the weak target, but if prices fell by one per cent (after inflation), the more ambitious target would apply.
Mr Morrison said the idea was another for the policy "merry-go-round".
"What we are focused on is what is going to deliver a durable investment framework to encourage investment in baseload, reliable, affordable energy."
Australian Greens climate and energy spokesman Adam Bandt said his party was open to considering Professor Garnaut's plan, if it was linked with the re-regulation of power prices.
"If strong targets were legislated and the retail electricity sector re-regulated, we could bring down pollution as well as prices," Mr Bandt said.
