AGL expected to close Loy Yang power station a decade early

One of the nation’s largest electricity generators is expected to announce the early closure of two major coal-fired power plants in Victoria and NSW, signalling the rapidly decreasing economic viability of Australia’s ageing and polluting coal fleet.

AGL is expected to announce on Thursday that its Loy Yang A plant in Victoria’s Latrobe Valley will close in 2035, a decade earlier than previously expected. The giant brown coal plant generates about 30 per cent of Victoria’s power each year.

Loy Yang Power Station, in the Latrobe Valley, will close a decade earlier than expected.Credit: Eamon Gallagher

The company will confirm its Bayswater coal plant in NSW’s Hunter Valley, will shut between 2030 and 2033.

There are 575 workers at Loy Yang A, which includes operations, the mine and the power station.

Meanwhile, Queensland Premier Annastacia Palaszczuk announced on Wednesday the state would end its “regular” reliance on coal by 2035, aided by a $62 billion package to boost renewable energy supply. Queensland has the youngest fleet of coal plants in the country, with the latest closure date listed as 2050 for the Millmerran plant.

The early closures increase the challenge for state and federal governments to keep a lid on power prices while cheaper renewables undercut the profits of ageing coal plants.

Energy Security Board head Anna Collyer says massive physical investment is needed to expand electricity networks.Credit: Oscar Coleman

Infrastructure costs are ultimately recouped from bill payers and the energy market operator has estimated more than $300 billion is needed to upgrade the electricity grid to handle the massive growth in wind and solar farms required to replace fossil fuels.

The Commonwealth’s independent policy adviser, the Energy Security Board (ESB), said “massive physical investment” was needed to expand electricity networks, while policy reform must urgently be delivered with an “unrelenting focus on cost discipline”.

“Managing those risks and delivering an orderly transition requires urgent market reform and
regulatory settings that encourage efficient investment in our energy future,” said ESB chair Anna Collyer.

In response to these findings, the federal Minister for Climate Change and Energy, Chris Bowen, said they highlighted the significant damage left by the previous government.

“Not only did the former government fail to deliver a coherent energy policy over nine long years, their dysfunction and lack of action has had serious consequences,” Bowen said. “Australians are now literally paying the price with increasing electricity bills.”

The Victorian government this week promised the most ambitious renewable energy-storage targets in Australia, which it said would be capable of powering about half of the state’s current homes at their peak energy use. The $157 million package included a 125-megawatt battery in the state’s north-west to stabilise the ageing electricity grid.

AGL is updating its climate transition strategy on Thursday morning and multiple sources told The Age and The Sydney Morning Herald that the company invited environmental groups to a briefing following an announcement to the stock exchange.

AGL did not respond to questions but confirmed it would update the market.

“We don’t comment on rumours,” a company spokesman said. “As we announced in June, our review of strategic direction includes a review of existing strategies, decarbonisation objectives including reassessing decarbonisation pathways, the optimal future energy mix and capital structure.”

AGL’s coal-fired power stations account for about 8 per cent of Australia’s overall carbon emissions.

Early coal plant closures could mollify some institutional shareholders, who say closures in the mid-2030s are needed to bring AGL in line with the goals of the Paris climate agreement, which aims to limit global heating to about 1.5 degrees above pre-industrial levels. But other environmental groups are likely to see it as too little, too late.

AGL has been under sustained shareholder pressure to close its remaining coal-fired power stations in the 2030s after a campaign by billionaire businessman Mike Cannon-Brookes, a major shareholder, forced a backdown on plans to split its coal-fired power stations from its retailing and renewable energy assets via a controversial demerger.

Late on Wednesday, Cannon-Brookes’ private investment company Grok Ventures announced it would back four new candidates for AGL’s board.

They were former Energy Security Board chair Kerry Schott, the head of Tesla’s energy business in Australia, Mark Twidell, chair CSR’s safety and sustainability committee, Christine Holman, and Professor John Pollaers.

“Grok believes the AGL board needs to expand to include a broader range of skills, expertise and capabilities to reset the strategic direction and culture of this historic company,” the firm said in a statement.

The company’s revamped strategy is due to be released this week. Managing director Graeme Hunt has previously said AGL would report back to investors by the end of September. It will have to consider shareholders’ mounting expectations surrounding emissions and the latest modelling on what the east-coast power market would look like in coming years.

In 2021, EnergyAustralia told workers at the coal-burning Yallourn Power Station in the Latrobe Valley that it would shut in mid-2028 and the Victorian government made a confidential agreement with the company to ensure the plant would continue until that date. The plant will be replaced with a 350-megawatt battery in the Latrobe Valley by the end of 2026.

In its official 30-year road map released this year, the Australian Energy Market Operator estimates that 60 per cent of the east-coast coal fleet will exit the electricity grid by 2030, while all of Victoria’s coal-burning power stations are likely to close by 2032.

Loy Yang B, owned by Alinta, is officially due to close in 2047.

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