Eraring and Loy Yang A coal closure wrangles show need for hard renewable targets

These days, sadly enough, the Clean Energy Regulator is not the place you go to for cheery information. A non-descript email sent out with little fanfare by the regulator on Monday delivered some depressingly familiar news: Australia is falling behind in the race to renewables, and it could be about to get worse.

The regulator reported that just 188MW of new capacity had been approved in July – including one 180MW wind farm at Dulacca in Queensland – taking the total for the year to date to just 1.2GW. That’s less than half the run rate needed to reach 82 per cent renewables by 2030, and to fill the gap created by closing coal plants.

This is not a surprise. As RenewEconomy has noted, the battery storage sector is about the only aspect of the renewable transition that is going to plan just now. Wind and solar are terribly delayed, as pointed out by Clean Energy Council on numerous occasions, and likely to be confirmed by its latest report due on Wednesday.

We are now about to see the consequences of these delays – on emissions, costs, investment and jobs, and the future of big industry in Australia. There is a lot at stake.

Already, hopes that the closure of Australia’s highest emitting plant, the 2.2GW Loy Yang A generator that burns mud for power in Victoria, could be fast-tracked before the most recent 2035 target date look dashed.

On Monday AGL Energy revealed it had signed a secret deal with the state government that will guarantee unspecified support until mid 2035 if the coal plant – as expected – struggles to make any money as the growing share of rooftop solar and other renewables eats its business lunch.

It was painted in some quarters as good news. And in some ways it is: Victoria has a hard, legislated target for 95 per cent renewables, which means there is no place for either Loy Yang A, or its half sibling Loy Yang B (owned by Alinta) on the state grid beyond that date.

What the deal does signify – along with a new nine-year contract signed by AGL with the Portland smelter until 2035 – is that AGL and the state government see little likelihood in Loy Yang A closing earlier, certainly not in the 2030 timeframe once pushed for by its biggest shareholder, software billionaire Mike Cannon-Brookes.

It might still close earlier than 2035, and the agreement does allow for that, so far as we know. But it more likely represents the grim reality that the rollout of wind, solar and storage is stalling, and may stall further in the face of a conservative led campaign against new projects and transmission lines.

AGL CEO Damien Nicks told RenewEconomy on Tuesday that little has changed since AGL announced its planned closure date of 2035 for Loy Yang A a year ago.

“That’s when we think we can get the build out done that we need to do and the of the market,” Nicks said. “That’s only one year on, so not a huge amount of change, other than what I would say is the market is talking about all of the challenges right now. And that’s a good conversation to have.”

It’s now likely that offshore wind will have to come to the rescue, and despite all the chest beating from the would-be giga-scale offshore wind developers, these are mostly lines on a map, and the roll out of these projects will not be quick.

Now the attention is turning – again – to Australia’s biggest coal generator, the 2.88GW Eraring coal plant in NSW. Its owner Origin Energy has for some time flagged its “intention” to close the plant as early as August, 2025, although this has never been “locked in.”

It has now become the focal point of the battle between the conservative naysers – led by the Coalition and the Murdoch media – and those that understand that the country’s economic future rests in its ability to transition rapidly to renewables. And it is not going well.

On Monday, Nine media reported that it had seen part of the “health check” on the NSW state grid prepared by energy consultant Cameron O’Reilly, which Nine says recommends a delay to the closure.

That is a widely shared expectation – RenewEconomy reported on the same speculation last week – Race to renewables: WA delays closure of coal unit, will NSW follow suit at Eraring? – and has been suggesting for months that this is where the NSW government is heading.

The Labor government has made no secret of the fact that it wishes it still owned Eraring, and that it wishes it wasn’t scheduled for closure in 2025. But it may be facing some harsh realities that mean the outcome is not clear, and that a delay is no fait accompli.

First, let’s see what they have said on the record. The state government is not commenting on the reports, and insists it has no firm view. That decision is expected to go to cabinet, and be announced next week.

Intriguingly, this will be the same week that the Australian Energy Market Operator releases its annual Electricity Statement of Opportunities, its annual assessment of supply opportunities that has recently been turned by mainstream media into a regular “black-out” prediction watch.

The ESOO is a conservative document. It will no doubt say – as Murdoch media has already previewed – that it expects a reliability gap to emerge in NSW after the closure of Eraring. But its assessment will have the important caveat that that gap will likely be filled by the state government’s own plans.

This includes the series of auctions it is currently holding, particularly the expanded auction of 930MW of short duration “firming capacity” – likely to be battery storage.

Bids closed for that tender last week, but because the winners will not have been announced before the ESOO is finalised and published, they are not regarded by AEMO as “committed” and a potential shortfall will be signalled. The newspaper headlines will sing that loud and clear.

But if AEMO makes it clear that the reliability gap will be filled by those and other projects, what’s the NSW government to do?

It is assumed that Premier Chris Minns would prefer to put the closure of at least some units back to early 2027, after another summer and safely after the next election. But he can’t easily go out and tell voters he is saving them from blackouts if the market operator says that is not true.

If he does keep it open, he has an Eraring sized problem on his hands – how much will it cost taxpayers. Some energy analysts suggest it could be up to $400 million a year, and that money would be better spent elsewhere.

And there is no guarantee that keeping coal generator open is going to be a particularly strong political selling point in 2027.

Origin, for its part, says it hasn’t seen the O’Reilly report, and hasn’t been told anything by the state government.

“As we stated in the closure notice to AEMO, we will continue to assess the market over time, and this will help inform the final timing for the closure of all four units at Eraring,” an Origin spokesperson said.

“We continue to engage with the market operator, the NSW Government, our people, and the local community regarding plans Eraring’s closure. As we stated in the closure notice to AEMO, we will continue to assess the market over time, and this will help inform the final timing for the closure of all four units.

“We do not shy away from the need to exit all coal-fired power generation as soon as renewable energy, storage and firming generation can replace it.”

The conservatives, of course, are willing it and demanding it to stay open. The Coalition has made clear it wants to stop wind, solar and storage, and leave Australia’s ageing, decrepit and increasingly unreliable coal plants to keep running until something called “small modular reactors” come to the rescue.

As former chief scientist and nuclear power admirer Alan Finkel told RenewEconomy in June, this is highly unlikely to be even a remote prospect this side of 2040 – and that doesn’t even factor in costs and waste issues.

What that effectively means is that the Coalition is calling for emissions reductions to be ignored, and that it is signalling the death of big industry, investment and jobs in the meantime. But that is what Gina Rinehart and Big Fossil demand of their courtiers. Not much has changed in more than a decade.

It’s hard to know who is most to blame for this mess, but everyone should get a mention. Apart from the stone-walling and the repeated lies of the Coalition and Murdoch media, the big utilities have failed to invest in enough new capacity, transmission lines have not been built, and connection and other problems have hindered new projects, and little has got through planning departments.

Most glaring of all is the lack of vision and the lack of hard targets. Former Liberal state energy minister Matt Kean had a fair bit of the former, and foresaw the problems of not preparing for a rapid coal exit.

He put the renewable infrastructure roadmap into place – and legislated it – but there are no fixed times for coal exits or renewable targets.

Environmental activists point out that paying hundreds of millions of dollars a year to keep Eraring open is not needed, and that two reports – including “The Lights Will Stay On” by the Climate Energy Finance and “Earing can be closed on schedule” by Nexa Advisory – outline why and how Eraring should close on time.

Brad Smith, from the Nature Conservancy Council, says it would be an absolute disaster for the climate, energy affordability and the credibility of the NSW government when it comes to emissions reductions. 

“We cannot imagine a scenario where the NSW government reaches its own inadequate climate targets if they choose to extend the life of Eraring by even one or two years.”

 He even points out that NSW would be better off buying everyone in the state a solar-powered Tesla. That would offset in two years the emissions of keeping Eraring on line.

The CEC’s Kane Thornton says keeping Eraring open will simply make it worse for renewable energy investors.

“As a nation, we require enormous investment to build the projects required to accelerate our transition to a clean energy future,” Thornton said in a statement.

“Any extension of coal-fired power stations dilutes investor confidence and can have unintended, long-term impacts on generation and supply.”

Nexa Advisory’s Stephanie Bashir is convinced that this mess can be avoided if hard targets are set, and that there is a firm vision around where we want to get to on emissions and when. The science, and more recently industry, tells us net zero and soon, a long way before 2050.

Once targets are set, she says, you can work back and see what needs to be done – build transmission lines, building renewables in distributed networks in the meantime, make planning approvals, improve market signals and connection processes. Legislate.

Bashir says extending the date of closure is not a plan, given that there has been five years notice from Origin. She notes the Central West Orana renewable energy zone was declared four years ago and still there are no projects that are shovel ready.