Latrobe Valley coal-fired power stations must be kept open for the full-length of their technical life and not be retired early in order to maintain grid reliability into the next two decades, according to a new report.
The Australian Energy Market Operator released the inaugural Integrated System Plan evaluating the likely changes to the National Electricity Market over the next 20 years.
It is predicted that about 30 per cent of the NEM's existing coal resources will be approaching the end of their technical lives and will be retired in the next 20 years.
"This highlights the importance of mitigating premature retirements as these resources currently provide essential low-cost energy and system support services required for the safe and secure operation of the power system," the report said.
The report does not recommend building any new coal-fired power plants, as modelling suggested they would be too unviable and too expensive to build.
It only looks at wholesale pricing and the most efficient ways to maintain reliability, and does not look at retail prices.
It found that the most cost effective replacements for coal are a combination of renewables including solar, wind and large-scale hydro including Snowy 2.0 and Tasmanian pumped-hydro.
It also looked at additional transmission lines between the eastern states.
Grattan Institute energy program director Tony Wood said it was in the energy company's interests to maintain existing coal-fired power stations until their announced closing dates.
"It's in the interest of everyone to make sure companies that own Yallourn and Loy Yang keep operating until their closure dates and these companies give many years notice before they close," Mr Wood said.
"The companies owning these plants need to make sure they spend money on maintenance and keep the plants in good nick.
"After about 50 years old, this is when things start to wrong and the costs of repair become too expensive to maintain, as we saw with Hazelwood and we seeing with Liddell."
AEMO chief executive Audrey Zibelman said the analysis confirmed Australia was in the midst of transformative and unprecedented change in the sector.
"We are witnessing disruption across almost every element of the value chain," Ms Zibelman said.
"Due to the vital importance of affordable, reliable and secure power as the engine of a strong economy, care must be taken now more than ever to manage this transformation in order to minimise costs and risks and maximise value to consumers."
EnergyAustralia executive Mark Collette the company planned to run the Yallourn power station through to its announced closing date in 2032 and then rehabilitate the site.
"Of course, we acknowledge policy and market settings may impact our approach," Mr Collette said.
"But right now, our plan is to continue to invest in Yallourn and our people for so long as the plant is needed, to provide solid base-load, affordable electricity supply for our customers and support a responsible transition and integration of cleaner forms of power into the system."