An existing government-owned gas-fired power station was not used recently when the energy system was struggling, raising questions over whether a new one is needed.
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The Morrison government has announced $600 million for its Snowy Hydro energy company to build a new coal-fired power station at Kurri Kurri in the NSW Hunter region.
Justifying its announcement, the government said Tomago aluminium smelter - Australia's biggest energy user - had to partially shut down over the last week because of a lack of power available.
But Snowy chief operating officer Roger Whitby has revealed the company's other NSW gas fired power plant was not used by the market, because it was offering prices at $15,000 megawatt hour.
The Australian Energy Market Operator decided not to use the plant, Mr Whitby said.
"If there was a critical supply shortage that would have been dispatched, but as it turned out in the midst of all that uncertainty it wasn't on that occasion required," he told a Senate estimates hearing in Canberra on Tuesday.
Labor senator Jenny McAllister questioned whether there is a gap in the market as the government says, and what prices Kurri Kurri will offer.
Snowy chief executive officer Paul Broad pledged to release the business case for the Kurri Kurri project "as soon as possible" after contracts are negotiated.
He promised the internal rate of return would be "double digit".
It comes as Labor said it will push back against plans to expand the remit of Australia's renewable energy agency to include carbon-capture and blue hydrogen.
Opposition energy spokesman Chris Bowen said the proposed regulations would give Energy Minister Angus Taylor the power to unilaterally assert that new technologies were low-emissions.
"I'll give you a hint - the R in ARENA stands for renewable - that's its job and that's the job Labor will defend," he told reporters.
Labor will move disallowance motions in both chambers of federal parliament and is asking the cross bench to support them.
"Those Liberal MPs who pretend to be environmentalists and supporters of renewable energy in their electorates can justify their vote to their communities," Mr Bowen said.
The Greens had already planned to try and stop the change.
Some federal budget initiatives hinge on the new regulations, including a plan for ARENA to help industrial energy efficiency.
The Morrison government has previously tried to expand the remit of the Clean Energy Finance Corporation by changing its legislation, but the bill was hijacked by its own members to try and get support for nuclear.
Australian Associated Press
