Extend Eraring power station, report urges

An independent report commissioned by the NSW government has recommended the state strike a deal to prolong the lifespan of the Eraring coal power station.

Origin Energy's Eraring power station.

An independent report commissioned by the NSW government recommended the state strike a deal to prolong the lifespan of the Eraring coal power station and the establishment of a mechanism to orderly manage the retirement of fossil fuel generators.

Origin Energy’s Eraring coal power station is set to be retired in 2025 but the exit of NSW’s largest electricity generator has stoked alarm about the capacity of the country’s National Electricity Market to cope and the prospect of further soaring power bills on households and businesses.

The new NSW government commissioned an independent report, which was delivered this month, and The Australian understands it urged the Labor government to enter into negotiations with Origin to prolong its life to prevent any reliability gaps and guarantee no adverse impact on prices. The Australian also understands the report recommended the creation of a mechanism to manage the retirement of coal power stations.

It is not clear whether the NSW government will move on creating a mechanism to manage the retirement of coal power stations, which would likely see state’s able to slow the retirement of the fossil fuel generator.

States have been hesitant to introduce such a scheme as coal remains extremely unpopular with voters, but the revelation of the recommendation will intensify pressure on the government to move especially as Australia struggles to build enough renewables to compensate for the retirement of coal.

NSW Energy Minister Penny Sharpe confirmed her office had received the much anticipated report, but she declined to comment on the specific recommendations.

“The NSW government is considering the recommendations in the report and will make the report and the government’s response public by the end of the month,” Ms Sharpe said in a statement.

“The government has always said all options are on the table when it comes to Eraring.”

The report must now be reviewed by the NSW Cabinet before formal negotiations with Origin begin.

The Australian understands the report did not recommend how long Eraring should remain open for or detail specific about how much generation would be required to ensure sufficient reliability.

The NSW government is likely to be guided by the Australian Energy Market Operator report that is due at the end of the month about how long to seek an extension for.

The Australian reported earlier this week that the market operator is expected to heighten its warning about Australia’s energy transition as notable infrastructure and grid-scale renewable energy projects fail to be delivered on schedule.

AEMO last year warned NSW would experience shortfalls in generation capacity by 2025 when Eraring was retired.

With AEMO not reporting until August 31, talks between Origin and NSW are not expected to begin for a couple of weeks. Informal, tentative talks between the two parties have begun, and a deal could be struck quickly though there remains no specific arrangement about how NSW could entice Origin to continue operating Eraring beyond 20205.

Moves by Victoria on Monday to guarantee AGL Energy’s Loy Yang A coal power station could be a template for NSW.

The Victoria-AGL deal sees Australia’s second most populous state agree to share the financial risk of the coal power station becoming uneconomical. Critically, however, AGL says it does not expect Loy Yang to be unprofitable until 2035.

That is in contrast to Origin, which accelerated the closure of Eraring to 2025 from its previous retirement date of 2032 after deeming it unprofitable.

The economics of Eraring have improved this year after the introduction of the price cap on coal, which sees Origin able to purchase the fuel source for $120 a tonne — a measure introduced by the federal government to bring the wholesale cost of producing electricity down amid a cost of living crisis.

Originally published as Extend Eraring power station, report urges