Government mulls decision about NSW’s largest source of power
The NSW state government has pushed back its promise to deliver an independent report into the future of Origin Energy’s Eraring coal power station.
An independent report into the future of the state’s largest electricity generator will not be publicly released this month as scheduled after the NSW state government delayed the publication in order to give it more time to determine its response.
The future of Origin Energy Eraring coal power station is a bellwether of Australia’s energy transition.
The facility, which generates about 20 per cent of NSW’s energy needs - is scheduled to be retired in 2025 when Australia should have developed sufficient renewable energy sources to replace it.
But Australia’s transition has proven sluggish and there is heightened concern about the impact of retiring the 2880MW facility on Australian households and businesses bills
The NSW government earlier this year asked a former energy industry executive to investigate the market’s readiness for the scheduled retirement of Eraring in 2025. It said the report would be published by the end of August.
Although The Australian last week revealed that the independent report had urged Labor to enter into negotiations with Origin Energy to extend the lifespan of the coal generator, sources confirmed the report will now not be issued until September at the earliest.
The extension will give the NSW government time to consider whether to extend Eraring, which can technically run until 2032 - though sources said the plant would likely run beyond its technical lifespan. While sources said all options remain on the table, Australia’s energy market has positioned itself in the expectation that the facility will remain open. Financial instruments indicating traders expectations about the wholesale cost of electricity show no discernible difference between before and after Eraring is supposed to have exited the marketplace - demonstrating an expectation that the government will need to strike a deal.
A deal will eradicate concern that Australia’s National Electricity Market will be materially short of generation capacity, which would drive up bills in the following years. But extending will force the NSW government to either underwrite the future of the plant or buy it from Origin.
A buyout would likely need to be extremely lucrative for Origin to consider as Australia’s largest electricity retailer places the site at the heart of plans to expand its renewable energy generation assets.
Eraring has valuable transmission infrastructure that Origin intends to leverage through the building of a large battery.
Sources familiar with government deliberations said underwriting was most likely, and a model to limit taxpayer exposure would need to be found.
Underwriting would likely see NSW have to cover any financial losses incurred by Origin to operate Eraring. But Eraring is on course to be losing money 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.
While financially expensive, extending Eraring in any guise will have political ramifications - especially for a government that won power on a platform that promised strong action to reduce emissions.
The left-wing fraction of the state government, which has hardened its resistance to coal, will be reluctant to support the fossil fuel for fear of antagonising voters.
Centre-right government ministers will be hesitant to use taxpayer funds to extend Eraring as the state grapples with a budget deficit that forces spending cuts, though there is less ideological opposition to coal within this cohort of politicians.