New South Wales must ramp up its gas production to combat huge spikes in power prices and avoid the dozens of low electricity supply days it endured in 2020, the federal government warns.

Despite a relatively mild summer, the Australian Energy Market Operator declared or forecast a lack of reserve electricity supply in NSW on 26 days last year, which was more than the other states combined.

The state also experienced a staggering "high price event" on November 20 - when electricity costs exceeded $7500 per megawatt hour due to network constraints - while other states were paying $3.14 to $7.39, according to National Electricity Market Review figures provided by the department.

On December 17, NSW spot prices soared to more than $10,000/MWh as renewables struggled following an outage of one of the Liddell coal fired power station's units, while other states were paying no more than $307.18.

At the time, gas generators responded by ramping up and trading prices dropped from a peak average of $10,034/MWh to $2,565, the NEM Review found. Energy and Emissions Reduction Minister Angus Taylor said the "sharp" increase in electricity prices showed the importance of the government's 1000MW dispatchable energy target to replace Liddell.

"This summer has demonstrated the essential role that gas plays in the NSW energy system … in putting downward pressure on prices," he said.

"The findings of a year-long task force show that if NSW wants to have affordable, reliable power following Liddell's exit, it needs to bring on new dispatchable capacity."

Mr Taylor said he expected "good projects" like Energy Australia's and AGL's proposed gas projects to be "developed and supported" in NSW.

Last year the government threatened to use Snowy Hydro to build a gas generator in the Hunter Valley if the electricity sector failed to fill the gap left by the scheduled closure of the Liddell coal fired power station in 2023.

"Snowy Hydro Limited is developing options to build a gas generator in the Hunter Valley at Kurri Kurri should the market not deliver what consumers need, Mr Taylor said.

Originally published as Gas generators needed to fight price spikes