Victoria’s secret coal safety net deals handed to EY Parthenon

Deals struck between the Victorian government and two of its oldest coal power stations remain under the spotlight, with EY Parthenon now drafted in.

Victoria faces the exit of major coal power plants in the next decade. Picture: Jake Nowakowski

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The Victorian government has contracted EY Parthenon to handle two secret safety net plans for the state’s Yallourn and Loy Yang A coal power stations.

EY Parthenon was handed a three-year deal by the Victorian Department of Energy, Environment and Climate Action running through to June 2027 with the option of a further one year extension.

The advisory contract covers the state’s strategic transition agreements, which include two secret deals struck to ensure EnergyAustralia’s Yallourn remained open until 2028 and AGL Energy’s Loy Yang A remained operating until 2035 while replacement green power was built.

The contract includes strategic analysis and guidance to the state and the department along with upskilling staff, if required. EY declined to comment, citing client confidentiality.

Yallourn in Gippsland. Picture: Andrew Henshaw/NCA NewsWire

The Allan government has refused to be drawn on the details of the risk-sharing model agreed with owners EnergyAustralia and AGL, with the mechanism kicking in should low wholesale electricity prices force a potential early closure.

A Victorian government spokesman said: “This is a routine tender process undertaken for DEECA to continue to receive commercial advice on the ongoing management of the STAs.”

But some in the market are betting stations like Yallourn in Victoria and Origin Energy’s Eraring in NSW could be further extended given sweeping delays which have hampered the rollout of large scale renewable generation and giant transmission projects like VNI West needed to send supplies to users.

In NSW, Origin could be tempted to extend the lifespan of NSW’s largest coal plant amid a period of profitability and lingering concerns about the pace of developing new renewable energy projects. That could extend the lifespan of Eraring beyond its earliest closure date of 2027, broker Citi concluded.

NSW and Origin in 2024 struck a deal to ensure the Eraring coal power plant stayed open until at least 2027 under a scheme where taxpayers underwrite some liability. The scheme allowed Origin to elect to keep Eraring open until 2029, albeit without any taxpayer assistance.

But Citi said the current performance of the facility and ongoing concerns about whether adequate replacements can be developed in time has heightened the chance of Eraring being extended.

“Eraring is running harder for longer, reinforcing its value in a volatile mid-transition market. Strong capacity factors recently observed and elevated realised prices point to upside risk to [Origin’s] near-term earnings,” the broker said in a note to clients.

“With growing signs that the market is underestimating Eraring’s optionality, we see further delays to closure or regulatory tailwinds such as capacity payments as increasingly plausible.”

Energy consultancy Rennie Advisory said coal may have to be extended to ensure stability in the power grid.

“On the supply side, we are beset with continual delays and cost increases. Social license for renewables and transmission is getting harder to achieve in regional areas, transmission costs are rising and timelines for transmission connections are longer than ever before,” said Rennie executive director for capital advisory, Matt Rennie.

“Coal simply cannot come out of the system until reliable supply is assured, and presently we don’t have that certainty as a country.”

Earlier in July, the $4bn Victoria-NSW VNI West electricity interconnector was hit with a fresh two-year delay in a major blow to Australia’s plans to reach ambitious renewable energy goals by the end of the decade.

Exiting Yallourn before 2032 may pose issues for the market, Mr Rennie said.

“When energy prices are considered, the options become even more limited. The future generation mix is more expensive than the one we have lived with for the last 40 years. As coal comes out, and networks are rebuilt, the price of firm power will rise,” he said.

“Bringing Yallourn out of service before 2032 makes limited economic sense from a reliability and affordability perspective, given the lack of certainty we have on renewable and network costs and timeframes.”