NSW's Eraring coal-fired power plant.
NSW's Eraring coal-fired power plant will have its life extended after a deal with Origin Energy. Image by HANDOUT/GREENPEACE
  • environmental issue

Lifeline for largest coal plant could cost state $450m

May 23, 2024

The life of Australia’s largest coal-fired power station will be extended for at least two years under a deal that could cost NSW taxpayers up to $450 million.

Origin Energy has been in talks with the NSW government about extending the life of the Eraring power station after a review warned the scheduled August 2025 retirement could result in electricity shortfalls and price hikes.

The state government on Thursday announced it had struck a “temporary and targeted” agreement with the company in order to guarantee a minimum supply of electricity until the new, expected closure date.

The extension would give the state time to deliver the renewable energy, storage and network infrastructure projects required to replace the power station, it said.

Under the agreement, the NSW government will not make any up-front payments to Origin.

But taxpayers could be billed up to $225 million each year for the company’s losses from Eraring if the firm opts into an underwriting arrangement.

Origin will need to decide by March 31 in 2025 and 2026 whether it wishes to opt into that deal for the following financial year.

It will also be required to share up to $40 million per year of any profits it earns from the facility.

NSW Premier Chris Minns.
 Chris Minns says the plan ensures NSW has reliable energy as it moves to renewable energy sources. Image by Dan Himbrechts/AAP PHOTOS 

Premier Chris Minns said the plan would ensure NSW had reliable energy as it transitioned to renewable energy sources and net-zero greenhouse gas emissions.

“The best way to undermine the renewable energy transition is to have the lights go out in 2025 … I’m not letting that happen,” he said.

Energy reliability in NSW faces risks from the summer of 2024 until 2028 due to delays to battery projects, a report from the Australian Energy Market Operator said on Tuesday.

Treasurer Daniel Mookhey said the deal with Eraring was proof that privatisation did not work.

“Had Eraring remained in public ownership, an agreement like this would not have been necessary,” he said.

“We won’t be handing over a $3 billion cheque to Origin as some said we would.

“Instead, this agreement incentivises Origin to only use the underwrite if there is a sudden change in market conditions.”

As part of the agreement, Origin has to permanently de-register all of Eraring’s power from the national grid by the end of April 2029.

Environmental groups and progressive think tanks have long railed against giving any lifeline to Eraring, which sits on the shore of Lake Macquarie south of Newcastle.

The Climate Council described the power-station lifeline as “a failure of climate leadership”.

“Every NSW taxpayer will bear the financial burden of this decision, which undermines climate targets for both NSW and Australia and delays the shift to cleaner, lower cost energy,” council economist Nicki Hutley said.

Official forecasts show NSW is expected to fall short of its legislated emission-reduction targets for 2030 and 2035 based on current abatement measures.

Clean Energy Investor Group interim chief executive Marilyne Crestias said delaying the closure of Eraring undermined efforts to secure a sustainable energy future.

“The extension of the Eraring power station cannot set a precedent for other coal-fired power stations to be extended and the NSW government must make that clear to the investors who stand ready to finance the NSW energy transition,” she said.

Eraring was privatised under the former coalition government in a 2013 deal that resulted in Origin being paid $75 million to take over the ageing asset.