* Review says clean energy target should be "fuel-neutral"
* Report could be blueprint for ending bickering on climate policy
* Country has been hit by energy crisis despite abundant resources (Adds comment from government, industry)
MELBOURNE, June 9 (Reuters) - Australia should adopt a "fuel-neutral" clean energy target to cut carbon emissions, cap soaring power prices and keep the lights on, the nation's chief scientist said in a report on Friday.
Recommendations in the highly-anticipated review, aimed at ending a decade of political warfare over climate policy, mean that coal-fired power generation using carbon-capture technology could potentially be used alongside gas and renewable sources such as wind and solar.
The blueprint for energy security, presented to federal and state leaders, is expected to drive a compromise on carbon and energy policy, urgently needed to curb power price volatility and end outages that have hurt manufacturers.
It was commissioned last October after tornadoes triggered a state-wide blackout in South Australia that came as a wake-up call to politicians as it left homes in the dark for up to eight hours and crippled industry for nearly two weeks.
"The lack of a transparent, credible and enduring emissions reduction mechanism for the electricity sector is now the key threat to system reliability," the review said.
The energy crisis has crept up on Australia, despite its rich endowment of coal and gas, as states have promoted rooftop solar and wind power in the absence of stable carbon policy at a federal level, and coal- and gas-fired plants have shut.
"More of the same is not an option, we need to aim higher," Chief Scientist Alan Finkel, the head of the review panel, said in a statement.
Finkel called for the government to set a clean energy target to encourage investment in "reliable generation", including coal with carbon capture and storage or gas.
Prime Minister Malcolm Turnbull said such a target would work, adding that the recommendation had the virtue of being technology-agnostic.
"We are looking at it, giving it very favourable consideration," he told reporters.
Finkel said the recommendation would help cut power prices by 10 percent for households and 20 percent for industry by 2050 compared to if policy was left unchanged.
The review advised making new generators have "fast response" capabilities to deal with peak demand, meaning that variable sources like wind farms would need to be teamed with sources such as gas-fired power.
It also suggested large generators should give three years' notice before closing to avoid shocking the market.
Defying state bans on gas drilling and green group calls for no new gas-fired power, Finkel said gas would be essential for providing reliable electricity.
Based on the current energy mix and expected growth, Australia's emissions in 2030 are projected to be about 57 percent higher than its target of 290 million tonnes under the Paris climate accord, the nation's top research body has said.
Gas retailers, generators, and industry groups said they hoped the blueprint would provide the certainty needed to drive billions of dollars of investment into new generation.
"This blueprint is the last, best hope that Australian energy customers have for a secure, reliable and affordable energy transition," said Energy Networks Australia head John Bradley.
(Reporting by Sonali Paul; Editing by Joseph Radford)