Australia’s Origin to keep Eraring coal plant on line

Australian utility firm Origin Energy and the New South Wales (NSW) state's Labor government have agreed to keep the nation's largest single power facility open for at least two more years.

The deal involves Origin shelving plans to close the 2,880MW Eraring coal-fired power plant near the NSW city of Newcastle next year, and operating the generator until 19 August 2027 and potentially until April 2029.

A generator engagement project agreement has been signed, under which Origin will receive compensation covering the cost of running the 40-year old plant, while aiming for the plant to generate at least 6TWh for the two additional fiscal years it will run. Eraring produced 12.15TWh last year, Origin's 2023 annual report showed.

The firm must decide by 31 March in 2025 and 2026 whether it will enter the underwriting arrangement for the following financial year. If Origin profits from its Eraring plant during these years it will pay NSW 20pc of the proceeds, capped at A$40mn/yr ($26.5mn/yr), but no compensation will be paid after 30 June 2027.

Origin can claim no more than 80pc of Eraring's financial losses each year from NSW and the compensation is to be capped at A$225mn each year, if it does opt in. Origin spent A$147mn for generation maintenance and sustaining capital on Eraring in 2023, with A$69mn owing to costs associated with the facility's ash dam.

Eraring provides around 20pc of NSW's delivered electricity and was scheduled to be replaced by the 2,200MW pumped hydro scheme known as Snowy 2.0 — which has experienced significant delays and will not be on line until 2029 — and the 750MW Kurri Kurri gas-fired power station also being developed by federal government-owned Snowy Hydro, which is to be commissioned later this year.

Coal-fired power generation

The viability of coal-fired generators has been declining for some time as Australia's renewable power generation grows to nearly 40pc of the total grid capacity. Widespread rooftop solar is driving electricity prices into negative territory during daylight hours and disrupting the profitability of large-scale generators.

Origin has committed to a 460MW battery energy storage system (BESS) at the site of Eraring, which it says will provide two hours of firming capacity to the national electricity market. Australia's Clean Energy Council said the announcement must be backed by measures to integrate new renewable generation and storage into the NSW grid with "clear signals and support" to rapidly transition to renewables.

Planning issues and rising costs have stymied the federal and state governments' plans to increase Australia's dependence on large-scale wind, solar, pumped hydro and BESS projects to replace coal generators. Canberra is aiming for an 82pc renewables share for Australia's electricity production by 2030.

Coal-fired generation increased on the year for January-March because of a warmer-than-average summer and increased availability.

By Tom Major