Power crunch fears trigger Yallourn coal power extension talks

One of Australia’s biggest coal power stations is set to stay open for four more years, in an extraordinary U-turn for the state Labor government’s renewable energy-only blueprint.

EnergyAustralia are in talks with the Victorian government over delaying the closure of Yallourn. Picture: NCA NewsWire / Andrew Henshaw

One of Australia’s biggest coal power stations in Victoria’s Latrobe Valley is set to stay open for four more years amid fears of ­devastating electricity shortages, in an extraordinary U-turn for the state Labor government’s renewable energy-only blueprint.

A decision to keep coal in the power system for longer underscores Australia’s volatile transition from fossil fuels to green power, even as federal Energy Minister Chris Bowen insisted a move to double the amount of renewable energy by the end of the decade remained on track.

The Australian can reveal owners EnergyAustralia, along with the Victorian government and the power grid operator, have held talks about delaying the mid-2028 closure of Yallourn. ­Instead, it could remain running into the next decade to dodge a power shortfall, although no decision on the length of an extension has yet been made.

Jim Chalmers on Tuesday ­refused to make an election promise that power prices would be “stable” under a second term of the Albanese government. The potential to prolong the use of coal may test the will of the Albanese government as it moves to fast-track the shift to renewables and clean energy.

The Yallourn station supplies 22 per cent of Victoria’s electricity and 8 per cent of the national market, and employs 500 workers.

Industry sources said the ­Australian Energy Market ­Operator had advised the ­Victorian government that Yallourn might need to be extended beyond 2028 over fears the electricity grid would be unstable if the giant coal plant exited.

A series of rolling talks had been held between AEMO and Victoria’s Department of Energy, Environment and Climate Action over the mooted extension. ­EnergyAustralia had also held talks with the Victorian government over the plan, sources added.

The extension, if approved, would mark a U-turn after ­EnergyAustralia decided four years ago to bring forward the plant’s closure to 2028 from its planned retirement date of 2032 citing an influx of renewable ­energy. Taxpayers could be on the hook for several hundreds of millions of dollars for any delay to ­Yallourn’s retirement, sources said, after the Victorian government struck a ­secret deal with EnergyAustralia to underwrite the coal-fired power generator, for an undisclosed amount of money.

Any deal is likely to see ­EnergyAustralia require the state government to agree to underwrite maintenance costs, which are typically tens of millions of dollars a year. Taxpayers will also likely have to underwrite losses that the power station makes, ­although Yallourn is currently profitable.

Energy Minister Chris Bowen. Picture: Sky News

EnergyAustralia told The Australian it had made a pledge for net-zero emissions by 2050 and “closing Yallourn by 2028 is part of that commitment”.

One source familiar with the situation said at least one senior executive from EnergyAustralia’s parent company, Hong Kong-­listed CLP Holdings was in Australia for talks expected to focus on the future of Yallourn.

Extending Yallourn would be the second such deal the Victorian Labor government has agreed to in as many years. In 2023, the state agreed to a deal with AGL Energy to ensure the Loy Yang coal power plant would remain open until 2035 and could only be shuttered beforehand with its approval.

In NSW, the Minns government extended Australia’s largest coal plant, the Eraring power station, for two years at a potential cost to taxpayers of up to $450m.

Victorian Energy Minister Lily D’Ambrosio said at the time of the Loy Yang deal that the closure of Yallourn was part of a trend of “old, coal-fired power stations creaking to a stop around the world”.

Experts warned this month Victoria would have to burn coal for longer, endure a gas shortage and suffer delays in developing renewable energy projects. AEMO is poised to deliver a fresh warning over gas shortages in Victoria in 2028 when it hands down its annual outlook report on Thursday.

Victoria has the most aggressive energy transition policy in Australia, including cutting emissions by 75-80 per cent by 2035 and fast tracking its net zero target by five years to 2045. It legislated the exit of coal-fired generation by 2035 – earmarking offshore wind to replace the traditional source of electricity. But offshore wind was increasingly likely to miss the timetable, industry sources said.

“To be feasible, it will require substantial state underwriting and they don’t have the money,” said an industry executive who declined to be named.

Extending Yallourn will reignite a war between Labor and the Coalition over the future of coal in the energy grid ahead of a federal election in May. Mr Bowen has stood by the Albanese government’s pledge to hit 82 per cent renewables by 2030, double current levels. The Coalition plans to abolish or overhaul what it calls Labor’s “carbon price by stealth” in a bid to boost fossil fuels under its energy plan.

The Treasurer on Tuesday refused to make an election promise that power prices would be “stable” under a second term of the Albanese government, after falling short on Labor’s 2022 election promise to cut household power bills by $275 by this year.

“What we need to do is we need to make sure that we are introducing cheaper, cleaner, more reliable energy into the system over time, because that’s the only way over the longer term that you get that downward pressure on prices,” Dr Chalmers said on Tuesday.

Two protesters crashed the Treasurer’s pre-budget speech at the Queensland Media Club on Tuesday: 63-year-old community worker Paul Gabbert and 23-year-old student Clancy, associated with the “climate defence” registered charity Rising Tide.

In a statement released by Rising Tide, Mr Gabbert said the cost to the taxpayer would continue to rise if the government did not stop approving new coal and gas projects. “Since the Albanese government came to power, after the devastating floods of 2022, they have approved 19 fossil fuel projects that are turbocharging the climate crisis, making unnatural disasters like cyclones, fires, floods, and heatwaves worse,” Mr Gabbert said.

Rising Tide quoted the second activist, identified only as Clancy, as saying: “As a young person, it’s terrifying to think this (cyclones hitting southeast Queensland) will be the new normal.”

Additional reporting: Sarah Elks

Originally published as Power crunch fears trigger Yallourn coal power extension talks