Energy Minister Angus Taylor says the re-elected Morrison government would take a "very close" look at ensuring NSW has reliable electricity - and prices don't skyrocket - as a coal-fired power station is shut.
AGL plans to close the NSW-based Liddell station when it reaches the end of its technical life in 2022.
In order to prevent a power shortfall, the energy giant plans to replace Liddell with a cheaper, technology-neutral option.
Mr Taylor said the government's energy market reforms meant Liddell must either be replaced or its life extended.
He said ensuring reliability was an issue for the whole industry and the government would not be afraid to use its powers to get the best result for consumers.
"There is very hard work being done right now by the energy companies to sort this out," he told Sky News.
"The government will be looking very closely at it to make sure it's done right - there are serious penalties incurred if it's not done right."
AAP understands one of the Mr Taylor's priorities is to discuss the government's plans to lower electricity prices with the big three energy companies.
Australian Associated Press