Tony Abbott says the fact that companies aren't investing in new coal-fired power and keeping a lid on power prices is not a case of market failure, but "government failure".
The former prime minister says "political risk" is the key reason behind companies such as AGL being reluctant to extend the life of power stations such as Liddell in the NSW Hunter Valley.
AGL is working on a plan to be delivered to the Turnbull government by early December which would either keep Liddell open for another five years beyond 2022 when it is due to shut down, sell it, or find an extra 1000MW of power elsewhere.
Mr Abbott says the government could send a strong signal to AGL by dumping all subsidies for renewable energy and encouraging coal-fired power, which is being built in many countries around the world.
"This is not a case of market failure - this is a case of government failure," he told 2GB radio on Tuesday.
He welcomed Prime Minister Malcolm Turnbull's recent verbal attack on "Blackout Bill" Shorten, but says the rhetoric must be matched by a change in policy.
"Let Labor be the party of renewable energy and let us the coalition, the Liberal Party, be the party of reliable energy," Mr Abbott said.
Mr Shorten told reporters in Townsville the government should ensure more gas is provided to the domestic market, which would drive down prices, and settle on new rules for investment such as a clean energy target.
