Eraring closure exposes the ugly side of our energy transition

Will Chris Minns save Eraring to keep the lights on in NSW?

For some months now the NSW government and Origin Energy have been negotiating payments to Origin to delay the closure of the Eraring coal-fired power station.

By capacity Eraring is the biggest power station and one of the biggest by production in Australia. Unlike the other coal generators that have closed, it is not an old wreck, and it is operating profitably. The negotiation under way involves the use of public money to delay rather than hasten coal generation closure, a perverse outcome if ever there was one.

In 2022, Origin Energy notified its intention to close Eraring in August 2025, five years earlier than previously planned. The Australian Energy Market Operator regularly analyses the likelihood of reliable supply and has concluded there is little risk of the lights going out if Eraring closes next year. In fact the shadow energy minister in NSW recently cited confidential advice from the AEMO, when he was minister, that the lights would stay on if batteries were developed (as is happening) to replace Eraring.

But recent events paint a different picture. If a second layer of price caps had not kicked in, last Wednesday the average price of electricity in NSW in its spot market would have been $3554 per MWh, 37 times higher than the average spot price last year.

On Wednesday only one of NSW’s four coal generators was producing significantly less than it normally does. Eraring was at half throttle. Wind generation in NSW was quite normal, demand was not unusually high but solar was not producing – the price spikes occurred in the early morning and evening periods.

But such is the tightness of the NSW market that even reasonably mild reductions in coal generation, combined with weak wind/solar generation, now induce much more expensive gas generation into the market and prices then rocket up.

The fact is that renewable generation has been increasing much too slowly in NSW to compensate for the withdrawal of the enormous amount of electricity produced by Eraring.

Over the past five years the average production from renewables in NSW has increased by just 307MW each year. But since the last big coal generator (Liddell) closed last year, Eraring has averaged 1807MW, accounting for a quarter of NSW’s annual electricity production. The data shows Eraring runs particularly hard in June, July and December, and in the early evening on most days of the year.

Site Services Manager Anthony Cotic at Eraring Power Station in the NSW Central Coast.

So how then have things got to the point where public money is being negotiated to delay the closure of a coal generator that is so obviously still needed, and is evidently still profitable?

Some of the blame can be pinned on the AEMO. It produces the Integrated System Plan, which it puts about as “the most robust ‘whole-of-system plan’ ” that it says ensures reliable and affordable power “while supporting Australia’s net-zero ambitions”.

Not only does the ISP have Eraring closing next year, but it predicts all coal generation declining to insignificant levels in NSW in just five years, and in Victoria just a little later.

While the AEMO is on record pointing out that progress is lagging behind its plan, the gap is now so large the AEMO’s plans stand accused of being far out of touch with reality. The AEMO’s plans matter because the industry and governments accept them as credible predictions not as just abstract studies.

The NSW government might be accused of failing to think critically: How could it possibly have imagined that in just three years, NSW would be able to expand renewables sufficiently to replace its biggest generator, even ignoring the large amount of new generation needed to replace Liddell’s closure in 2023? Why did the NSW government not tell Origin to get real in 2022 when it notified its intention to close in 2025?

Origin also has questions to answer. It is a sophisticated and respected operator. It is well aware renewables are not expanding quickly enough to come close to replacing the production of Eraring. It can be accused of taking advantage of the NSW government’s (and the AEMO’s) wishful thinking.

AEMO chief exective Daniel Westerman

When Origin submitted its popular non-binding closure notice in 2022, it established the basis for a negotiation with the NSW government to at least partially cover Eraring’s costs after the closure date, a date Origin surely did not seriously consider plausible.

In this way, Origin won popular support for announcing early closure while at the same time roping in the government to cover its costs and risks. Some might say Origin has been smart. Others might accuse it of opportunism.

Opportunism at the public’s expense is distasteful, but perhaps the bigger and more important failure here is institutional. The energy transition is evidently much more difficult than first thought.

Institutions with the standing needed to honestly tackle hard problems, rather than wishing them away with unrealistic modelling and predictions, are needed. Without such reform, we will have to expect yet more perverse outcomes.

Professor Bruce Mountain is director of the Victoria Energy Policy Centre.