Origin warns coal closures may need to be delayed if renewables not built fast enough

Origin Energy CEO Frank Calabria has warned that some of the coal power plants slated to close over the coming decade may need to have their retirement delayed, to make up for a lag in the shift to renewables.

In an address in Sydney on Tuesday, Calabria also signalled the need for “effort and support” for an orderly transition away from coal. This could include delaying the exit of some coal plants, and compensation for costs incurred in running uneconomic plants, retaining workers, and securing coal supply contracts.

“Coal closure timeframes have accelerated this year with some 17GW expected to exit the market by 2035, which is important to achieve the nation’s emissions targets,” he told the luncheon.

“However, consideration must be given to the cumulative impact of these closures on the market alongside the prospect of delays to new infrastructure coming online.

“There may be a requirement to delay the exit of some of these coal units, and only for as long as needed, to maintain the security and reliability of the NEM.

“These policies will need to be flexible, with consideration given to commercial factors,” he said.

To fast-track or delay, that is the question

Origin, in February, surprised the market by announcing the fast-tracked closure of its massive 2,880MW Eraring coal power station in New South Wales – the country’s biggest – bringing it forward by seven years to August 2025.

The move was described by Calabria, at the time, as reflective of “the continuing, rapid transition”of the National Electricity Market.

“The reality is the economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower-cost generation, including solar, wind and batteries,” he said at the time.

Then, the gentailer confidently told shareholders it expected more than enough new generation capacity to be constructed over the next few years to adequately replace Eraring.

In his speech this week, however, Calabria’s tone was adjusted.

“I’d argue that we’re still not moving with enough urgency to build the replacement infrastructure needed within the next seven years to manage coal closures and achieve the nation’s objective of 82 per cent renewables by 2030,” he said.

“As each day passes, not only does the urgency and complexity of the challenge increase, so too does the cost.

“History tells us that infrastructure projects in Australia take longer, and cost more, than planned,” Calabria added. He noted that the 82 per cent renewables target would require 28GW of utility scale renewables, or around 110 projects of 250MW each.

But he says that some of the bigger projects are facing delays, and so are storage projects and transmission projects.

“Most recently, Snowy 2.0 has been delayed, and its overall project costs increased and the EnergyConnect transmission project between South Australia and NSW is also delayed by a year.

“As a result, careful consideration must be given to policies that can help manage the final timeline for coal closures.”

Some would argue that the likes of Origin are at least partly responsible for the lack of real investment in new wind and solar, although that may change if Brookfield succeeds in its takeover and delivers on its promise of building 12GW of new capacity by 2030 – a significant acceleration of Origin’s current plans.

And then there are the risks of relying on coal…

Calabria also warned that over the next few years Australia would not be able to meet the needs of customers reliably and affordably without existing generation performing well.

Going by this year’s efforts, however, the reliable performance of Australia’s coal power fleet is by no means guaranteed.

Certainly, the Australian Energy Market Operator isn’t banking on it.

AEMO in July called for an accelerated shift to wind and solar, backed up by batteries and other storage, as a devastating combination of coal plant failures and soaring fossil fuel costs slammed the NEM.

In its July Quarterly Energy Dynamics report, the market operator painted a bleak picture of the risks of relying on legacy fossil fuel industry, risks laid bare by the crisis that unfolded on the NEM in June.

For his part, Calabria says the NEM crisis drives home the important role gas plays – and will continue to play for some time – in providing reliable power and ‘firming’ intermittent renewable energy supply.

“Gas peakers stepped in to fill the void left by coal plant outages in June, and without them the lights would likely have gone out,” Calabria said.

Calabria also says Origin continues to support the establishment of a capacity mechanism – “as a matter of urgency” – to drive new investment in back up, or firming, generation.

“It is an important policy to underpin reliability of the system by rewarding the availability of new dispatchable capacity,” he said.