Eraring deal between Origin and NSW state government
Origin has agreed to extend operations at NSW’s largest coal power station to August, 2027 after striking a deal with the state government.
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A deal to extend the lifespan of NSW’s largest coal power station has been struck with Origin agreeing to keep Eraring open until August, 2027.
The deal with the state government will temper concerns about energy security in NSW -- but underpinning the lifespan of Origin’s Eraring coal power station with taxpayer funds will stoke criticism from environmentalists who oppose any prolonging coal.
The NSW state government and Origin had been locked in talks over the future of the Eraring coal power station for months after an independent expert urged an extension.
The Australian on Wednesday reported that while unsigned, a deal was so close that an announcement could be confirmed as soon as Thursday.
The Australian last month reported talks had zeroed on prolonging the lifespan of Eraring for up to four years. Under a proposal then considered, Eraring would stay open for at least two years, with Origin having the option for a further two more.
The deal comes just days after the Australian Energy Market Operator warned NSW faced electricity shortfalls from 2025 onwards.
Prolonging Eraring, which produces about 25 per cent of NSW’s electricity needs, would temper much of those concerns and allow Australia’s most populous state sufficient time to build the substantial pipeline of renewable energy projects.
Environmental voters are unlikely to welcome taxpayers underwriting Eraring, though the full details of a risk sharing mechanism may not be revealed.
Such a deal has been used by Victoria in the past, as the state Labor government struck deals with AGL Energy and EnergyAustralia to keep the state’s two largest coal power stations open.
EnergyAustralia’s Yallourn will close in 2028, while AGL’s Loy Yang A will shutter in 2035 – giving the state enough time to bring online sufficient quantities of renewable energy. The terms of both deals remain a closely guarded secret, but they are a guiding principle for any extension of Eraring.
Eraring has in recent years been losing money. A rapid rise in rooftop solar has seen wholesale prices plunge to zero or below during sunny days, which explains why Origin in 2022 announced the retirement of the coal-fired power station in August 2025 – some seven years earlier than initially expected.
But Eraring’s fortunes changed in 2023 when the coal cap allowed Origin to recoup costs above $120 a tonne for coal, which returned the generator to profitability.
The scheme will end in June, and Origin is facing higher costs for coal that will dent the financial returns of Eraring without an unexpected move in Australia’s wholesale electricity market.
Should it return to a loss-making entity, a risk-sharing agreement with the NSW government would likely see the taxpayer compensate Origin beyond 2025.
Such a scheme would be politically sensitive to the Labor government, which has won favour with large swathes of the electorate with its commitment to renewable energy.
Support for Eraring is also unpopular with Origin’s rivals. Delta Electricity, which operates a smaller, neighbouring coal power station, earlier this month said using taxpayer funds to prolong Eraring amounted to financial reward for the company’s mismanagement of the facility.
Others are sceptical about Origin’s decision to close the plant. While the plant undeniably is losing money, senior market sources have suggested Origin needs the generation capacity to supply its 4 million customers and has an unfair advantage.
An extension, however, is unlikely to be the last time that taxpayers are forced to fund the running of a coal power station.
Australian law requires generators to give more than three years notice if they intend to close a coal power station. The federal government and its state counterparts can ill-afford, however, to allow traditional coal power stations to shutter as new renewable energy sources prove stubbornly slow to develop.
To avoid a repeat of the stand-off, states are pushing for new powers that would allow them to determine when a coal generator can close – though this so-called Orderly Exit Framework is opposed by the country’s energy industry – citing mixed signals for developing replacement renewable energy sources.
Origin Energy shares closed up 1.5 per cent, or 15c on Wednseday, at $10.16 each, against a small fall in the benchmark index.
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Originally published as Eraring deal between Origin and NSW state government
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