How the solar duck curve gave Australia’s biggest coal generator an early retirement

An abundance of low-cost solar power during the middle of the day has accelerated the demise of Australia’s largest coal generator while creating a market for big batteries to thrive.

On Thursday, Origin Energy announced that it would bring forward the closure of the 2,880MW Eraring coal fired power station – Australia’s largest – to 2025, seven years ahead of its original schedule.

Origin cited the changing daily dynamics of wholesale electricity prices for the diminishing profitability of the Eraring coal plant, with high levels of solar output during the day pushing prices to such lows that the long-term operation of the coal plant was becoming unsustainable – necessitating the company to lodge notice of closure with market regulators.

“The decision to submit that notice really does reflect the rapidly changing conditions of the national electricity market. They’re increasingly not well suited to traditional baseload power stations and are challenging their viability,” Origin Energy CEO Frank Calabria said.

“It has become increasingly clear over the last few years that the influx of renewables has changed the nature of demand for baseload power.

“At the same time, the cost of renewable energy and battery storage is increasingly competitive, and the penetration of renewables is growing and changing the shape of wholesale electricity prices, which means our cost of energy is expected to be more economical through a combination of renewables, storage and Origin’s fleet of peaking power stations.”

In New South Wales, solar power from both small- and large-scale systems has reached a level where, during the summer, it consistently meets more than half of the state’s power needs during the middle of the day.

During the solar peak in the early afternoon, solar output regularly beats coal plants for market share.

The last seven days of electricity generation in New South Wales. (OpenNEM).
The last seven days of electricity generation in New South Wales. (OpenNEM).

High levels of solar works to push wholesale electricity prices down to levels where the coal plant increasingly struggles to generate sufficient profit to cover the long-term capital expenditure on maintaining the plant.

The challenge was becoming increasingly difficult, in a market that required Eraring to operate with more flexibility, rather than as a traditional baseload generator. But given the size and age of the coal plant, Origin did not have the flexibility to adjust its output to respond to the lower prices.

“As more and more renewables come into the system, [Eraring] continues to have to run more and more as a capacity plant, and therefore that becomes challenging over time,” Calabria told an investor briefing.

“And if you’re looking forward to the capacity that’s due to come into the market, as well as what might be announced in the New South Wales roadmap, we’re making an assessment of where we see the economics of that over time and having to make, what is a difficult decision but nevertheless, one based on that.”

Origin sees this trend becoming more pronounced into the future, with coal generators increasingly getting squeezed out of the market, and so brought forward the planned retirement of the Eraring plant.

A slide from Origin Energy’s H1 2022 update to shareholders.
A slide from Origin Energy’s H1 2022 update to shareholders.

During earlier market updates, Origin had flagged the potential for changes in the way it operated the Eraring power station – including the potential for its early closure – as it conceded the plant lacked the flexibility to respond to the changes in market dynamics.

Eraring was designed to operate as a baseload generator and so was not well placed to provide dynamic supplies of power while remaining profitable.

Providing an example of how average prices had changed, Origin said that prices on either side of the solar peak – in the early morning and in the evenings – were higher and created an ideal market for storage projects.

In fact, Origin suggested it created ideal conditions for a big battery project, with the ability to effectively arbitrage the two price periods by charging the battery with cheap power during the day to be sold back into the grid during periods when prices were higher.

“This is a market that becomes more and more suited to a mix of capacity both short and long duration storage, whether that be batteries pumped hydro or gas peaking plants, as it continues to support the growth in renewable energy,” Calabria said.

Running true to its own assessment, Origin said it was progressing plans to repurpose network infrastructure at the Eraring site to host a 700MW big battery project.

Responding to Origin’s early closure of Eraring, the NSW Government announced that it would support the construction of an additional, 700MW/1,400MWh battery project on the Central Coast to maintain reliable power supplies.

Michael Mazengarb is a Sydney-based reporter with RenewEconomy, writing on climate change, clean energy, electric vehicles and politics. Before joining RenewEconomy, Michael worked in climate and energy policy for more than a decade.

Get up to 3 quotes from pre-vetted solar (and battery) installers.