The Andrews Labor government in Victoria said it had withheld backing for the scheme until it supports lower bills, lower emissions and more renewable energy jobs for the state.
Minister for Energy Lily D’Ambrosio moved with other jurisdictions to "postpone approval of the NEG" at Friday's meeting, the government said in a statement.
"Josh Frydenberg is no longer seeking blind endorsement on the NEG prior to its uncertain passage through his own party room," the statement said.
'Great step forward'
At the start of the gathering, Mr Frydenberg said the eyes of Australia were on the meeting.
A statement from Mr Frydenberg's office welcomed the agreement to continue work on the plan.
"Ministers have agreed to take the National Energy Guarantee to the next stage," a statement said.
Kerry Schott, the board's chief said this is a “great step forward”.
Cameron Dick, Queensland's acting energy minister, though, made it clear the gap with states remains wide, and that the onus will rest with the Coalition.
"The coalition partyroom is the biggest risk to energy and price stability - and has been for 10 years - so we need that party room certainty," Mr Dick said in a statement obtained by Fairfax Media.
It only takes one state or territory to veto a COAG plan.
States and the federal government have been at loggerheads over the policy, in particular, the federally legislated component that sets emissions reduction levels from the energy sector at 26 per cent of 2005 levels by 2030.
On Friday Energy Minister Josh Frydenberg faced down state energy ministers at the COAG meeting for the National Energy Guarantee.Photo: Mick Tsikas
Mr Frydenberg opened the event urging support for the policy. However, sources within the meeting told Fairfax Media that much of policy had been discussed at a private dinner on Thursday evening.
"Today we must take forward the National Energy Guarantee and I'm confident that we can," Mr Frydenberg said.
"Australian eyes are on this room today and what happens here matters to the outcomes around every Australian kitchen table and every Australian factory floor."
Mr Frydenberg said Australia could not have another failed energy policy, pointing to the collapse of the Emissions Trading Scheme and carbon pricing schemes, which were previously abolished.
"We have a collective responsibility to deliver cheaper, more reliable and clean power for Australian families and businesses," he said.
"It's not our job to re-litigate the mistakes of the pasts but rather to provide the solution for the future. Today, it's up to us."
As part of his opening address, Mr Frydenberg singled out hydrogen as a point of discussion.
Hydrogen has increasingly been in focus for the government.
Earlier this year the federal and Victorian state governments invested millions of dollars in a project to turn Victoria's brown coal into hydrogen for export to Japan.
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