Coal plant in Eraring to stay open longer: NSW government

The Minns government will seek a deal with Origin Energy to prolong the lifespan of the state’s largest coal generator beyond 2025.

NSW will seek a deal with Origin Energy to prolong the lifespan of the state’s largest coal generator beyond 2025 after the state government said it has accepted the recommendations of an independent report that said Eraring coal power station would need to stay open to safeguard electricity supplies and prevent soaring increases to bills.

Origin Energy’s Eraring coal power station was set to retire in 2025, but an independent report said such a closure at that time would expose the state to possible blackouts and further price increases.

Pointing the finger of blame at the previous Coalition state government, NSW energy minister Penny Sharpe said talks with Origin would begin soon.

“We’re not wanting coal-fire to be open one day longer than it needs to. We want to make the transition smooth so that our future is secure when it comes to the real crisis, which is also climate change,” Ms Sharpe said.

Prolonging the running of Eraring beyond 2025 will temper market nerves about blackouts and price increases that would strain household budgets, but it dents the prospect of Australia’s most populous state meeting 2030 carbon emission targets - much to the anger of environmentalists.

Australia has endured two years of consecutive price rises of more than 20 per cent, a key driver in an affordability crisis.

While seeking talks with Origin will dampen the threat, it will do little to bring an end to a saga that has plagued consecutive governments and overhung Australia’s energy transition.

Ms Sharpe did not place a timeframe on when talks with Origin would be concluded as she instead sought to display a position of strength

The government declined to specify how a deal with Origin would be done though she ruled out a purchase - which rival Alinta Energy had sought to leverage with an offer to Labor to retail the electricity generated.

Ms Sharpe said the government would not overpay to prolong Eraring, though sources said the comments belie the weak position that the state finds itself in.

The Australian Energy Market Operator last week warned NSW would face a material shortfall in electricity generation if Eraring retired. In contrast, Origin has said it is confident it has secured enough electricity to service its own customers and Eraring is on course to be unprofitable as soon as next year.

“We acknowledge the recommendations regarding Eraring’s closure, and as we have consistently said, we will continue to engage with the NSW Government to find a path forward that can help navigate the economic challenges facing the plant and avert any risk to the reliability of electricity supply in the state,” a spokeswoman for Origin said.

“The Eraring closure notice provided an important signal to the market about progress towards our nation’s climate goals, and Origin does not shy away from the need to exit coal generation as soon as there is sufficient renewables, firming and transmission capacity available.”

With little leverage, NSW will have to underwrite Eraring - leaving NSW taxpayers on the hook for potentially hundreds of millions of dollars. Origin has said Eraring requires an annual spend of about $200m-$250m plus the cost of buying coal to run, though it earns money from selling electricity.

Eraring is, however, on course to be unprofitable as soon as next year when the emergency coal price cap finishes.

The federal government in conjunction with state counterparts introduced a $120 a tonne cap on the price of coal, a scheme designed to put downward pressure on household and business bills.

The scheme will end in 2024 and Origin’s supply costs will spike, likely plunging the facility back to a loss-making operation.

NSW taxpayers would likely have to cover the losses until the state has developed sufficient sources of renewable energy to compensate for the retirement of Eraring in Lake Macquarie.

AEMO last week said NSW may have developed sufficient renewable energy generation capacity by 2027, well within the technical lifespan of Eraring.

But to limit an Eraring extension to just two years will require NSW to hasten an energy transition that like the rest of the country is struggling.

Australia has set ambitious targets of having renewable energy generate more than 80 per cent of the country’s electricity by 2030, a transition that is rapidly reshaping the country’s $2tr economy.

Coal remains the dominant source of electricity, generating about 60 per cent of Australia’s energy needs, though AEMO expects about two-thirds of these generators to have been mothballed within a decade.

Although lofty and ambitious, Australia is struggling to build and connect new renewable energy generation projects quickly enough to compensate for the retirement of coal power stations.

Ms Sharpe said the state government would implement recommendations from the independent report to hasten planning approvals for renewable energy projects.

Industry sources said the measures will be beneficial but would not be sufficient to overcome social licence burdens, which have emerged as the biggest obstacle to new transmission infrastructure that has slowed new renewable energy projects from coming to fruition..

Originally published as Coal plant in Eraring to stay open longer: NSW government