Australia's power grid needs a multi-billion dollar upgrade to safeguard future energy supply amid the shift away from coal-fired power stations, the nation's energy operator says.

The next 20 years will see unprecedented transformation in the power industry as it transitions to a low-carbon future, The Australian Energy Market Operator says.

It’s calling for major interconnector development, costing between $1 billion and $3 billion, to help the connection of renewable generation to existing infrastructure.

In the AEMO’s latest national transmission network development plan, it says a new interconnector could be built between South Australia and NSW or Victoria as well as a second Bass Strait link.

The network, historically designed to transport energy from traditional coal and gas generation centres, will be asked to support large-scale renewable generation, including 32 gigawatts of new wind and solar generation to be connected by 2036.

“In short – we’re projecting that a more decentralised grid must be a more interconnected grid,” AEMO chair Tony Marxsen said in Melbourne on Monday.

“We have to connect a lot of renewable power generation in new locations.

“More options in the market should provide more ways to not only lower the cost for customers but also add cost effective, agile solutions to support the security of the grid.”

The report also flags greater reliance on gas power generation to support renewable generation – but decisions on investment is dependent on the timing of coal retirements.

The energy industry believes new interconnectors would make the system worse off and has renewed calls for a national climate and energy strategy.

“In the absence of a national climate and energy strategy, it is difficult to predict what conditions a new interconnector will be dealing with in 10 years, let alone by the end of its working life,” Australian Energy Council chief executive Matthew Warren said.

“These are 50-year assets that have material impacts on generation at both ends of the line. The risk is they increase costs without necessarily solving the system security problem they were meant to fix.”

Federal Energy Minister Josh Frydenberg said renewable energy targets in SA, Victoria and Queensland were driving up power costs and putting energy security at risk.

“Greater connectivity between states with interconnectors is a good thing but it’s always been a question of who pays,” Mr Frydenberg said in a statement.

“The report also emphasises the importance of more gas supply as it is a critical transition fuel which can help stabilise the system.”

The report does not mention emission intensity schemes despite an interim report on the national market’s security by chief scientist Dr Alan Finkel released on Friday concluding an EIS would take pressure off power prices while reducing blackouts and reducing climate change.