Key Takeaways
- Origin Energy will not trigger an opt-in clause for the first year of the extension to the Eraring coal generator.
- The decision reduces the taxpayer exposure in the underwriting agreement from $450 million to $225 million.
- Eraring’s closure has been delayed until at least August 2027, with an option to extend until April 2029.
The NSW state government says it has been informed by utility giant Origin Energy that it will not trigger an opt in clause for the first year of the agreed extension to Eraring, the country’s biggest coal generator.
The decision effectively halves the $450 million that taxpayers will be exposed to in the controversial underwriting agreement announced last year, and is being seen by the state government as a vindication of its agreement to delay the planned closure of the 2.88 gigawatt (GW) Eraring facility by two years.
It means that Origin Energy will assume the financial responsibility for keeping Eraring open for the first year of the extension at least, and suggests that Origin is satisfied that it will be able to run the power station profitably.
That is not surprising given the high wholesale prices in the state in recent times, and it reflects Eraring’s new found ability to ramp up and down and minimise its exposure to low wholesale prices, which is usually driven by the output of rooftop solar in the middle of the day.
It also reflects the growing ability of Origin and other big power players to control the market, particularly at times when supply is short – such as when Eraring and other coal generators are out of action – and cause wholesale prices to surge. The number and extent of this activity has been well documented by the energy regulator.
Under the underwriting deal negotiated with the state government, Origin was able to receive up to $225 million a year, but had to share some of the profits from the coal fired power station with the state if they exceeded certain parameters. They appear to have decided that, despite the rising cost of coal, it will still do well enough.
So while the taxpayer might be spared the tab of keeping Eraring online, consumers are likely to pay through higher wholesale prices.
“NSW taxpayers have so far not paid a single dollar to operate the power station under the deal,” the government said in a statement on Tuesday.
“The agreement supports an orderly exit from coal-fired power, ensuring the lights stay on for homes, businesses and industry while NSW delivers more low-cost, reliable renewable energy.”
Eraring was supposed to close in August, 2025, but under the deal with the NSW government agreed to keep at least half of it operating until August 19, 2027, although Origin has an option to delay the closure until April, 2029, although the state has insisted there will be no further support for such an extension.
NSW insists it is progressing well towards its renewable energy objectives, which is to have 12 gigawatts of new wind and solar capacity in the grid by 2030, and supported by two gigawatts of long duration (eight hours) storage.
It has created five renewable energy zones, although there remains concern that transmission will not be built in time and that in some key areas, such as the south west, will not be able to support the sheer weight of project proposals that are being made.
The NSW government has said that the Eraring extension is essential to avoid electricity supply shortfalls, although most analysts questioned the need, and suggested the real reason was to avoid further spikes in wholesale prices that would affect households and businesses, particularly in the lead up to the next state election.
“We are protecting families and businesses from bill shock and power outages while the energy transition continues – without it costing them a cent this financial year,” state treasurer Daniel Mookhey said in a statement.
“This deal was only necessary because Eraring was sold off by the Liberals and Nationals.”
Energy minister Penny Sharpe said the government is serious about keeping the lights on. “This short, temporary agreement with Origin provides certainty while we deliver more renewable energy and storage to replace ageing coal-fired power plants.”
Origin is also building the biggest battery storage project at the site, which will comprise 700 MW and 2,800 MWh of capacity by the time it is completed.
Meanwhile, the 850 and 1680 MWh Waratah Super Battery is being built down the road at the shuttered Munmorah coal fired power generator, while other batteries are being built at the site of the shuttered Liddell coal generator, and five eight-hour batteries have been underwritten by the government.
In an effort to speed up efforts to secure more transmission and long duration storage, the NSW government has announced an extra $800 million to the Transmission Acceleration Facility to connect the state’s Renewable Energy Zones to the grid sooner.
It also established the $1 billion Energy Security Corporation, which will focus on long durations storage projects, particularly in pumped hydro which have proved difficult to overcome planning and economic hurdles.
It has also legislated a new minimum target of 28 gigawatt hours (GWh) of long duration storage by 2034, which represents an additional 12 GWh beyond the 16 GWh and 2 GW already set for 2030.
The NSW government says it has given planning approval to six wind farms, 12 large-scale solar farms, 14 battery energy storage systems and one compressed air storage system since its election.
