Origin Energy’s Eraring coal plant faces $400m hit from Paris emission target
The value of Eraring, Origin’s coal-fired power station, would fall by $400m under the Paris climate accord emissions targets.
The value of Eraring, Australia’s largest coal-fired power station, would fall by $400m under the Paris climate accord emissions targets, according to owner Origin Energy.
Analysis of Origin’s generation assets based on a move to a low-carbon economy show the 2800- megawatt Eraring coal plant in NSW would shed at least $400m of its net present value based on two degree and 1.5 degree climate change scenarios.
However, it would still retain a net positive value due to earnings in the early years while the overall value of Origin’s generation portfolio would increase compared to “low-action” nationally determined contributions such as Australia’s commitment to reduce emission by 26 to 28 per cent from 2005 levels by 2030.
“The value of Eraring under a 1.5 degree scenario falls but still has value because it plays a role particularly in the early years towards transition,” Origin chief executive Frank Calabria said after the company’s annual general meeting in Sydney on Wednesday.
“You see a reduction in the value of Eraring but overall that scenario still supports the other type of generation that we’re in. And the value of Eraring really still exists in relation to the early years before transition.”
Eraring produced record output of 16.5 terawatt-hours in the 2019 financial year with strong market demand for the fuel continuing in the wake of Hazelwood’s exit in 2017.
Overall, Origin expects to benefit in valuation terms from either of the 2 degree or 1.5 degree emissions pathways due to its increasing focus on gas and renewables supply. “You get value from the balance of your assets that play an increasing role under that scenario which means your peaking gas fleet of contracts as well as the renewable contracts you have in play,” Mr Calabria said.
Origin modelled the 2 degree and 1.5 degree pathways based on a carbon price being introduced by 2023 and said it continued to support the introduction of a mechanism as the most cost-effective lever to reduce emissions at the scale and speed necessary to enable the transition.
Carbon prices range from $15 a tonne in Australia’s current scenario to a maximum price of $80 a tonne under the 1.5 degree scenario, Origin said.
“If you want to achieve a 1.5 degree outcome the way you do that is by introducing a carbon price. That’s how you achieve those outcomes,” Mr Calabria said.
Origin has been under pressure by small investors to boost its climate change ambitions and consider exiting its Eraring plant in NSW before its scheduled closure date of 2032.
However, proxy advisers earlier this week opposed resolutions brought by the Australasian Centre for Corporate Responsibility and Market Forces including a demand to phase out coal power generation prior to 2030 to meet the objectives of the Paris agreement.
Origin chair Gordon Cairns, who plans to step down from the board by the end of 2020, told the AGM its targets were consistent with the goals of the Paris agreement. The shareholder resolutions “do not reflect the views of the vast majority of shareholders, nor of your board. We have said publicly that many of the assertions lack scientific rigour, peer review or are simply incorrect”, Mr Cairns said.