Australia's gas-fired power output plunged to a 16-year low in...

Australia's gas-fired power output plunged to a 16-year low in the March quarter because of rising natural gas prices, lower power demand and competition from renewable energy, the country's energy market operator said on Wednesday.

The decline calls into question the Australian government's plans to potentially build a new gas-fired power plant to replace a coal-fired plant due to shut in 2023, to keep a lid on power prices.

Amid opposition from the power industry and green groups, the government has said it would build the gas-fired plant if the private sector fails to approve 1,000 megawatts (MW) of power projects by the end of April to replace supply from AGL Energy's (AGL) Liddell coal-fired plant.

Gas-fired power generation dropped 41% to an average of 1,122 MW in the March quarter, the lowest quarterly average since 2005, continuing a trend of low gas-powered generation (GPG), the Australian Energy Market Operator (AEMO) said in a quarterly report.

"This trend has been driven by low NEM (National Electricity Market) spot prices ... coupled with increasing wholesale gas prices, and reduced thermal unit outages, which has rendered GPG uneconomic in some NEM regions," AEMO said.

Spot wholesale power prices fell to their lowest first-quarter average since 2012, as demand for cooling fell during a mild southern hemisphere summer.

The market also faced increasing spells of prices below zero because of an abundance of solar and wind power, AEMO said.

The biggest price drops were in the country's two most populous states. In New South Wales, prices sank to A$38 ($29.59) per megawatt hour (MWh) from A$86, and in Victoria they fell to A$25 per MWh from A$79, AEMO said.

The lower prices have dented earnings for the country's top power producers - AGL Energy, Origin Energy (ORG) and EnergyAustralia, owned by Hong Kong's CLP Holdings 0002.HK .

($1 = 1.2842 Australian dollars)