NSW and Origin in talks to extend Eraring power station for up to four years

Australia’s biggest coal power station may stay open for four more years, with the NSW government working on the safety net solution to head off the threat of blackouts hitting the state’s electricity users.

Origin Energy’s Eraring Power Station could be kept open for four more years.

Australia’s biggest coal power station may stay open for four more years, with the NSW government working on the safety net solution to head off the threat of blackouts hitting the state’s electricity users.

The NSW state Labor government and Origin have been locked in talks over the future of the Eraring coal power station for months after an independent expert urged an extension. While The Australian understands an agreement remains unconfirmed – an extension guaranteeing an extension of two years, with an option for Origin to extend the lifespan by a further two years.

Minister for Climate Change and Energy Penny Sharpe did not comment on the timescale of the extension, but confirmed no deal had yet been reached.

“The NSW Government is engaging with Origin on its plans for Eraring Power Station and will not comment while the process is ongoing,” said Ms Sharpe.

An Origin spokeswoman declined to comment on details of the negotiations, but pointed to comments in the company’s quarterly report published on Tuesday.

“We remain in discussion with the NSW government on the closure date for the Eraring Power Station,” the company said.

While sources stressed a deal could yet collapse, there has been widespread acceptance that a deal would be done – though talks have dragged on for months – amid dire warnings should Eraring shutter as scheduled from 2025.

The Australian Energy Markets Operator last year warned NSW risked unreliable electricity supplies from 2025. Market executives have also warned allowing the state’s largest source of electricity – typically producing about a quarter of NSW’s electricity would stoke prices for households and businesses, already buckling under high interest rates and soaring inflation.

But opponents to extending Eraring said NSW could have adequately replaced the lost generation, and the closure would have been a signal for would-be renewable energy developers to rapidly accelerate work.

Environmental voters are unlikely to welcome taxpayers underwriting Eraring, though the full details of a risk sharing mechanism may not be revealed.

Such a deal has been used by Victoria in the past, as 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 online sufficient quantities of renewable energy. The terms of both deals remain a closely guarded secret, but they are a guiding principle for any extension of Eraring.

Eraring has in recent years been losing money. A rapid rise in rooftop solar has seen wholesale prices plunge to zero or below during sunny days, which explains why Origin in 2022 announced the retirement of the coal-fired power station in August 2025 – some seven years earlier than initially expected.

But Eraring’s fortunes changed in 2023 when the coal cap allowed Origin to recoup costs above $120 a tonne for coal, which returned the generator to profitability.

The scheme will end in June, and Origin is facing higher costs for coal that will dent the financial returns of Eraring without an unexpected move in Australia’s wholesale electricity market.

Should it return to a loss-making entity, a risk-sharing agreement with the NSW government would likely see the taxpayer compensate Origin beyond 2025.

Such a scheme would be politically sensitive to the Labor government, which has won favour with large swathes of the electorate with its commitment to renewable energy.

Moving to curtail political hostility, the Labor government is talking tough – insisting it will not be held hostage.

Originally published as NSW and Origin in talks to extend Eraring power station for up to four years