Keeping the lights on at Eraring could cost taxpayers $150 million a year

NSW taxpayers could be on the hook for as much as $150 million a year for every year the Eraring coal-fired power plant remains open, energy analysts predict, with the Minns government refusing to detail the terms of its negotiations with owner Origin Energy ahead of a likely extension beyond 2025.

More than six months after the government confirmed it would begin negotiations with Origin on a proposal to extend Australia’s largest coal-fired power station beyond its scheduled closure date of 2025, there remains little detail about the terms of an extension.

Energy Minister Penny Sharpe has declined to offer details of her negotiations with Origin over an extension of Eraring Power Station.Credit: Peter Rae

But a new report from Climate Energy Finance, a pro-renewables think tank, estimates the state’s taxpayers could be forced to pay between $120 million and $150 million a year if the plant is kept running at its full operational capacity.

The analysis is partly based on details of Origin’s negotiations with the former government over a potential purchase of Eraring in mid-2021, released through freedom of information laws. It projects the potential cost of underwriting the plant’s operation by examining coal spot prices, the potential impact on wholesale energy prices and the likely capital expenditure needed to keep the plant open.

Tim Buckley, the director of CEF, an independent public interest think tank, said his projection was a “charitable” one, based on an assumption Origin would not seek to “gouge” taxpayers by aiming to make an “exorbitant” profit from any deal with the government.

“Origin is not a charity, though. It has to cover its costs and even if it only keeps two units open and all four online as reserve capacity, they’re going to want the government to absorb the risk,” he said.

NSW taxpayers could be on the hook for as much as $150 million a year for every year the Eraring coal-fired power plant remains open. Credit: Bloomberg

The former Coalition government had the option to buy Eraring from Origin in mid-2021 but walked away from a potential deal over concerns about the terms of a deal involving the underwriting of the coal-fired power station.

But last year the Minns government said it would re-open negotiations with the energy company on the back of an energy supply check-up which found closing the plant on schedule in 2025 would be “impossible without reliability and affordability impacts”.

The NSW Energy Minister, Penny Sharpe, has declined to provide details of the negotiations, citing their confidential nature, while also refusing to say how long the government might seek to keep it open beyond 2025.

Her office declined to answer questions about the likely cost of extending the plant, or when it was likely to reach an agreement with Origin. In a statement, a spokesman for the minister said that the government was “engaging with Origin on its plans for Eraring Power Station and will not comment while these discussions are ongoing”.

The government has been concerned about a so-called “reliability gap” in the energy grid caused by delays in the rollout of major renewable energy projects. However, whether a gap exists is subject to debate.

In December, the Australian Energy Market Operator released an update on the state’s grid security which found there was a reliability gap after a “potential early retirement of Eraring Power Station”.

However, that gap closed when it included new renewable projects that are anticipated to come to life by 2025.

Buckley said his analysis showed it was “not gilding the lily” to say the government did not need to extend Eraring based on the current trajectory of new renewable energy.

“What we’ve then done is look at the highest day of demand last year and said, if you take Eraring out and add in all the volume and the firming to come online over the next 18 months, could we have got through the same event? And the answer is yes,” he said.

“Would Minister Sharpe and the Minns government cop it in the neck if we were to have rampant blackouts after the closure of Eraring? Yes, absolutely. But the reality is, and AEMO says this, we won’t.”

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