Origin Energy, the owner of Australia’s biggest coal generator at Eraring has admitted that the 2.88 gigawatt (GW) generator is prone to trips, just when it is needed most and operating at or near full capacity.
The admission comes just months after the company struck a deal with the state government that will keep the power station open for at least another two years, till August 2027, and possibly longer. The state government has promised to provide up to $450 million over the next two years if needed.
The extension has always been framed around the need for energy reliability, even though this has been questioned by energy experts, and put under doubt by assessments by the the market operator itself.
A newly released report by the NSW government revealed that the real focus, and the real value to it, at least in political terms, was the hope (some would say misplaced) that the extension would protect it (the government) from the impact of price hikes as it went into the next election campaign.
That report valued the much halloo-ed “reliability” component at about one tenth of the value of market prices.
Origin Energy has also maintained that the extension is all about reliability, but in a webcast with analysts on Thursday to discuss its latest profit results – and the trebling of earnings from its electricity division in the past year to more than $1.65 billion – that the ageing generator is prone to trips.
“Where you get very still days, and you get not a lot of sun, the energy price is quite elevated, we really need Eraring to run reliably through that,” the head of markets Greg Jarvis said. “And as it reaches end of life, we are finding that it does trip a little bit more.”
People should not be surprised by this. The Australian Energy Market Operator has repeatedly made the point that the biggest threat to energy reliability is the unexpected tripping of ageing fossil fuel assets, be it coal or gas generators.
Because these units are invariably large, and the impacts potentially profound – as Victoria discovered earlier this year when its biggest coal generator at Loy Yang A tripped completely – it needs to spend more time ensuring that enough capacity is in reserve to take its place.
Eraring has already experienced a number of trips this year, most notably in early May when the loss of two units helped propel wholesale electricity prices to the market cap. Prices remained so high over the following week that the market in NSW had to be suspended.
The Australian Energy Regulator has since raised questions over the bidding practices of the major generation companies – Origin Energy, AGL, EnergyAustralia and the government owned Snowy Hydro – which it said had contributed to the price rises.
They said there was nothing illegal, but noted that the practice of “re-bidding”, and the slow ramping up of key generation assets (only just above the legal minimum) had pushed prices higher, with a poor outcome for consumers.
All of which paints a big question mark over the deal between Origin and NSW. The government painted itself into a corner during the election campaign, but may find that the expensive underwriting deal resolves neither the reliability nor the price issues.
Origin, which did little to nothing to replace the lost capacity of Origin despite announcing its planned “accelerated” closure back in 2022, is now expected to deliver more assets before the next deadline for a closure decision.
That deadline, CEO Frank Calabria indicated on Thursday, is likely to come in 2026, giving it enough time to consider coal contracts and the future of its employees.
The deal with NSW allows for the continued operations of at least two units at Eraring until 2029, although the official closure date lodged with AEMO is for August, 2027.
