Origin coal plant exit may be delayed: Macquarie

The closure of Australia’s biggest coal power plant may be delayed, Macquarie analysts said, to safeguard the electricity grid.

Origin Energy may delay closing Australia’s largest coal power station, Eraring, in 2025 amid fears of power shortages with the Snowy Hydro 2.0 expansion running more than a year late, Macquarie said.

The power giant accelerated the closure of Eraring in NSW’s Hunter Valley by up to seven years to as early as August 2025.

However, delays in bringing on new capacity have stoked expectations the coal plant will now remain open for several more years to protect Australia’s electricity system.

Eraring “is a major issue for NSW, given the delays at Snowy Hydro 2.0. It may be unpalatable, but Eraring may play an important capacity role,” Macquarie analysts said.

The NSW government may ultimately need to step in and provide financial support, according to the broker.

Origin “can benefit from any short-term extension of Eraring, as the government will need to help cover the fixed costs associated with running. A decision will need to be made this year.”

Fears has been growing that the removal of Eraring, which accounts for 20 per cent of the state’s electricity needs, may exacerbate a volatile energy transition and high wholesale power prices if replacement generation has not been installed in time.

The NSW government said it was concerned about the Snowy expansion falling behind schedule, while pointing to plans for its 700 megawatt Waratah Super Battery which will be installed by 2025. It will also launch a competitive tender for an additional 380MW of back-up supply while Origin also plans its own 700MW battery on the Eraring site.

“It’s disappointing that the Commonwealth’s Snowy 2.0 continues to fall behind schedule. The NSW government’s nation-leading renewable energy policy provides a comprehensive approach to building new infrastructure to replace ageing power stations,” a spokeswoman for Energy Minister Matt Kean said.

Origin boss Frank Calabria said on Thursday that while the “base case” for Eraring remained August 2025, it would consider changing the closure date should market conditions change.

“It’s on the horizon (for 2025). But from day one and it even continues to be the case that we would be monitoring the market and the transition, and you can observe a number of facts around how that’s going but it is still on the horizon,” Mr Calabria told The Australian.

“And that’s still in our base case, but nevertheless, there’s a lot that’s got to happen for us to then make that final call.”

The Australian Energy Market Operator is due to deliver its annual electricity outlook report next week which will take into account the Snowy delay and deliver a forecast for the overall grid.

The Snowy delay will add to electricity system risks after the grid operator last year warned of worsening forecast reliability in NSW in 2026 and 2027 should Snowy not hit the original 2.0 deadline.

Australia will experience its first “cluster” of coal-generation retirements when at least five power stations close this decade, totalling 8.3 gigawatts and equal to about 14 per cent of the market’s total capacity.

The shutdown of AGL Energy’s Liddell coal plant in April was not originally expected to cause any shortfalls given Snowy Hydro’s proposed Kurri Kurri gas plant could replace generation.

However, the gas project timeline has also now slipped by a year to December 2024 with wet weather causing delays.

A decision on whether to keep the Eraring plant open would be made several years in advance, Mr Calabria said in November, suggesting a mid to late 2023 deadline.

Canadian investment giant Brookfield has said it would consider extending the life of Eraring should it prevail with an $18.4bn takeover bid.

Brookfield has pledged $20bn to fast-track Origin’s move to green sources of power by 2030 but said it remained open to delaying a planned 2025 closure if required.