Taxpayers to underwrite extension of NSW’s largest coal power station
NSW’s largest coal power station will remain open for at least two more years and could keep operating until 2029 after Origin Energy struck a deal with the state government.
NSW’s largest coal power station will remain open for at least two more years and could keep operating until 2029 after Origin Energy struck a deal with the state government, amid broader delays in rolling out enough replacement renewables.
The deal, which The Australian revealed was poised to be signed, will ease concerns about electricity reliability in Australia’s most populous state.
NSW now has two years to rush through the development of new renewable energy generation to compensate for the retirement of a facility that provides a quarter of the state’s electricity.
However, the deal is set to inflame environmental furore as taxpayers provide a financial backstop to Origin for any losses incurred.
NSW Energy Minister Penny Sharpe said the Labor government had little choice but to strike the deal. “We have to keep the lights on and prices down so that we can make sure that renewable energy and storage and firming is in place as we manage the exit – the much-needed exit – of coal power,” Ms Sharpe told reporters in Sydney.
Talks between Origin and the NSW government had dragged on for months but the two on Thursday announced a scheme that both sides said was fair.
If Eraring makes a loss NSW taxpayers will compensate Origin for 80 per cent of the shortfall, capped at $225m.
If Eraring makes a profit, Origin will pay the state government up to $40m.
The compensation scheme runs only during 2026 and 2027.
Origin could elect to run it for a further two years, but it will not receive any taxpayer support should it do so.
The deal states unequivocally that Eraring will close by 2029 at the latest.
Origin chief executive Frank Calabria told The Australian that there was no mechanism to extend the government underwriting scheme beyond 2027.
He said the arrangement struck a balance between the energy transition and reliable electricity supplies.
“We believe this agreement strikes the right balance, with an extension to operations enabling Eraring to continue supporting security of electricity supply in NSW through the energy transition, while making compensation available to Origin in the event economic conditions for the plant are challenging,” Mr Calabria said.
Origin has agreed to endeavour to produce 6 terawatt hours (TWh) of electricity during 2025 and 2026, output that would temper concerns about electricity supplies in Australia’s most populous state. The Australian Energy Market Operator earlier this week warned NSW could have insufficient reserves of electricity generation from 2025.
Environmentalists and proponents of an accelerated transition to green power reacted swiftly in opposition to Thursday’s deal.
Clean Energy Investor Group interim chief executive Marilyne Crestias said the extension would pause much-needed investment in new renewable energy generation.
“The extension of the Eraring power plant cannot set a precedent for other plants to be extended, and the NSW government must make that clear to the investors who stand ready to finance the NSW energy transition,” Ms Crestias said.
“CEIG calls on the NSW government to make it clear that the Eraring power plant extension is a one-off, that it will actively work towards not extending it further and that similar action will not be taken to extend other coal generators.”
The comments underscore a growing view that these so-called closure contracts – where states agree to deals with energy companies to ensure coal-fired power stations remain open – are going to govern Australia’s energy transition.
Such deals have been used by Victoria in the past. 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 sufficient quantities of renewable energy online. The terms of both deals remain a closely guarded secret.
Australian law requires generators to give more than three years’ notice if they intend to close a coal-fired power station.
There is growing alarm in some quarters that the power station owners are aware that they can submit a notice to close and put pressure on the government to underwrite their plant.
Environmentalists oppose taxpayer funds underwriting coal and insist it will deter investment in building new zero emission replacements.
Australia is struggling to build enough renewable energy generation capacity to replace the traditional power source, and the federal government and its state counterparts can ill-afford to allow coal-fired power stations to shut before adequate replacements have been built.
By striking the deal with Origin, however, NSW has bought itself two more years. Ms Sharpe said the government was confident it could establish enough new capacity to allow for the retirement of Eraring by then.
Ms Sharpe said NSW would be a major benefactor of the so-called Capacity Investment Scheme and Labor would soon announce measures to hasten planning application processing for would-be renewable energy developers.
