NSW to take more time to consider closure date of Australia’s biggest coal generator

The New South Wales Labor government is to take more time to consider its options as it weighs up its response to the newly commissioned “health check” of the state grid, and the proposed closure of the country’s biggest coal generator.

The state government was to have delivered its verdict this week, but RenewEconomy understands that it has decided to take more time – several weeks – in what is clearly a devilishly complicated situation.

If the state government owned the 2.8GW Eraring coal plant, as it clearly wishes it did, then it would be a fair bet to say that the government would be seeking to push its August, 2025, closure date into the future. In fact, it is likely that it would never have agreed to an early shut-down in the first place.

But the government does not own it. Origin Energy does, and any decision that the state government makes needs to be sorted with that company.

It is unlikely any extension can be demanded without potentially significant compensation to Origin Energy, or to Brookfield which – pending regulatory approvals – is due to take over the running of the Origin utility business as part of an $18.7 billion take-over offer that has been accepted by the Origin board.

A fair guidance to where the NSW government will lean will likely emerge with the planned released this week of the Australian Energy Market Operator’s annual Electricity Statement of Opportunities report, its 10 year forecast of supply and demand on the grid.

This document has been traditionally used by AEMO and the industry as a signal for new investment, and to identify where new capacity is needed, although it has been hijacked in recent years by media hysteria over the potential of blackouts.

In a special update in February, AEMO predicted no breach of the tight interim reliability standard in NSW until around 2027, and this did not include a tender for 380MW of “two hour” battery storage that had been announced by the government.

That tender has since been increased to 930MW of two hour “firming capacity” under a deal with the federal government that marks the first rollout of the new Capacity Investment Scheme. Given that gas is not allowed, and the new capacity must be built by late 2025, batteries appear to be the technology of choice.

That tender is now closed and results will be announced in coming months.

The NSW government, however, may not have its eye only on the potential supply shortfall – it could also be looking at the potential wholesale price impact of the Eraring closure, particularly given it is due to go to the polls in early 2027.

The details of the “health check” report delivered by industry consultant Cameron O’Reilly have not been released, but there has been speculation that the government should consider extending the life of the Eraring plant, or at least having a conversation with Origin Energy about it.

It may also be pointing to potential price impacts, although pricing remains largely in the hands of the big utilities – including and most particularly the federal government owned Snowy Hydro – that control most of the existing dispatchable capacity and are not shy of exercising their market power.

The O’Reilly report also appears to have identified problems with the roll out of renewable energy zones, and new wind and solar projects. Some suggest some of this blame has been laid in the path of EnergyCo, but it may also point to the holdups in planning permits.

The state government, however, has rejected speculation raised in a RenewEconomy article that EnergyCo could be disbanded, and has also been keen to announce new planning permits since that issue was also highlighted in a RenewEconomy article.

Origin Energy, for its part, has long insisted that the closure date for Eraring is only indicative, and suggested it would be subject to market conditions.

It could be seeking a deal similar to that obtained by EnergyAustralia and AGL for their Yallourn and Loy Yang A coal plants in Victoria, which – although the deals are secret – guarantee state government support to ensure the plants are kept open until a certain date, although the deals have been painted as “accelerating” the closures.