The nation's largest power generator, AGL Energy, has urged the federal government to exclude coal from its planned clean energy target and said there is no appetite among private investors to fund new coal-fired power plants.

AGL, which sources 77 per cent of its electricity generation from coal, said including the fossil fuel in the target would send the wrong signal for the industry, which should prioritise more low-cost, efficient clean energy alternatives.

"The danger is you convince yourself that you see coal in your future and therefore if it doesn't happen and the markets don't deliver it, the government may step in and do it," AGL Chief Executive Officer Andy Vesey said in an interview on Thursday.

"The industry is not going to invest in things that don't make sense."

Deputy Prime Minister Barnaby Joyce has indicated support for the government taking an equity stake in any new coal-fired power station, claiming lenders are willing to finance fossil fuel-based electricity generation. Coal provides a more reliable source of base-line power compared with alternatives such as wind, which require storage systems, Joyce said in an interview on July 10.

A review by the country's chief scientist, Alan Finkel, recommended a clean energy target be adopted after 2020, under which a percentage of power would be generated from low-emissions sources, encouraging gas, renewables and potentially carbon capture and storage.

Generators would receive certificates for the power they produce depending on how much their emissions intensity is below a set threshold. Electricity retailers would need to show a predetermined share of their power came from low-emissions generators.

Energy mix

The diminished role of coal in the nation's future energy mix has sparked a fresh skirmish among politicians concerned a rapid switch to renewables may pile further pressure on the country's surging power prices and endanger the reliability of the national electricity market.

Australia has pledged to cut greenhouse gas emissions by at least 26 percent on 2005 levels by 2030.

AGL, which plans to close its final coal-fired power station in 2048, said it is critical to adopt the clean energy target so that the industry can commit new investment in renewables and avoid the disruptive impact of large coal generators exiting the system.

"It is an important mechanism to make sure we don't have a gap between the retirement and exiting of older coal plants," said Vesey. "This is a time to signal long-term the type of energy infrastructure you want in Australia."

Bloomberg