The New South Wales Government has hit a significant hitch in its bid to sell its biggest power generator.

The Australian Competition and Consumer Commission (ACCC) has rejected the government’s plan to sell Macquarie Generation's two coal fired plants in the Hunter Valley.

The New South Wales government had tried to sell the plants to AGL for $1.5 billion, but ACCC Chairman Rod Sims says the deal will kill competition if it goes ahead.

“The proposed acquisition would result in the largest source of generation capacity in NSW being owned by one of the three largest retailers in NSW,” Mr Sims said.

“With this acquisition the three largest retailers in NSW would own a combined share of up to 80 per cent of electricity generation capacity.

“This is likely to raise barriers to entry and expansion for other electricity retailers in NSW and therefore reduce competition.”

The Electrical Trades Union has backed the ACCC’s decision, with union representative Adam Kerslake saying it had made the right call.

“It is time for [NSW Treasurer] Mike Baird to stop trying to sell out the people of NSW for a quick buck,” he said.

“Instead [he should] commit to retaining Macquarie Generation in public hands so that it can continue to provide effective competition in the sector and keep down power prices.

The money from the sale would have paid for infrastructure in NSW, and Treasurer Mike Baird says the price will not be dropped to secure a different deal.

“We are doing everything possible to release capital to get on with infrastructure but we are not going to do it at any cost,” Mr Baird said.

“It is very clear we are not going to undertake transactions where we sell assets for less than they are worth and that should give some confidence to the people of NSW.”

Mr Kerslake disagrees.

“If the O’Farrell Government was fair dinkum about delivering the best outcome for the people of NSW they should never have tried to sell Macquarie Generation in the first place,” the ETU spokesperson said.

Shadow Treasurer Michael Daley said the ACCC has saved the state from a bad deal brokered by Mr Baird.

“Let's make no mistake about this, even after the ACCC said this sale was likely to see electricity prices rise, Mike Baird and Barry O'Farrell were still determined to press ahead.”

Greens energy spokesperson John Kaye said “the O'Farrell government should abandon privatisation.”

“If they can't find a bidder who can give them enough money to make it worthwhile for them and who won't at the same time become a dominant market player they should get out of the business of privatisation.

“There's nothing wrong with Macquarie Generation remaining in public hands,” he added.