State energy ministers give themselves power to force coal generators to stay open

State energy ministers will be given the power to force coal fired generators – and other plant – to stay open if the capacity is needed for grid reliability and security, and if a negotiated deal can’t be reached.

Under the Orderly Exit Management (OEM) framework agreed by state and federal energy ministers last month, and put together by NSW energy minister Penny Sharpe, state ministers will have the power to delay a closure by up to three years.

The details of the OEM were released on the same day as the draft 2024 Integrated System Plan, in which the market operator says coal will likely make an early exit – with the last coal unit shuttered by 2038 – because of their age, unreliability and inability to compete.

See: AEMO’s jaw dropping prediction for coal power: all but gone from the grid in a decade

In effect, the new framework will likely only apply to NSW, given that Queensland owns the bulk of its coal power and can already make calls on closure times as it sees fit, and Victoria has already struck a closure timetable deal with two of its three remaining privately owned coal fired power plants.

South Australia closed the last of its privately owned coal generators in 2016, although it does have a couple of big mid-merit gas plants – such as Pelican Point – which could in theory be affected by this legislation.

Western Australia is not impacted by the new rule, but it owns the bulk of its remaining coal generators and recently instructed one unit to stay on in a reserve capacity for an extra summer, and bailed out the remaining private generator, to ensure they are available until new renewables and storage is built.

NSW still has four coal fired generators in operation – Eraring, Vales Point, Bayswater and Mt Piper – and the latest Australian Energy Market Operator planning blueprint, the draft 2024 Integrated System Plan, predicts the last of these units will be closed by 2038 at the latest.

The question for energy ministers, and the market operator, will be whether enough renewable and storage capacity can and will be built to allow coal generators to close early, as AEMO suggests they will want to do given their increasing age, unreliability, and inability to compete with renewable power.

Eraring is the most contentious closure, because at 2.88 GW it is the biggest in the country, and because it is the next one scheduled to close, with a current target date of August, 2025.

NSW was urged by an independent review it commissions to negotiate a possible extension for at least some of the Eraring units with its owner Origin Energy, but there is no sign of an agreement.

It is not clear if the new legislation, which has to be approved by the Australian Energy Regulator, will be in place in time to affect the Eraring outcome, but its very presence may swing negotiations one way or another.

Under the proposed rules, only revealed on Friday on the same day as the draft 2024 ISP, there will be a three step process that could lead to a ministerial intervention, which is described as a “back-up tool” for governments to address any reliability or system security shortfalls and if not enough other capacity has been built in time.

In Step 2, the minister can seek an agreement to keep the plant open for as long as is needed before it is permanently closed as planned.

In Step 3 – if there are no alternatives – the minister can issue a notice to the power station to temporarily remain in operation. This will last no longer than three years and the AER will decide on compensation, which will ensure that the generator owner’s costs are covered.

In a statement, Sharpe said the OEM framework was designed to ensure reliability at the lowest cost while the system transitions to renewables.

On Thursday, Sharpe told journalists that there is still a potential reliability gap caused by the Eraring closure out to 2027 – although it is unclear if this takes into account the newly announced three big new battery projects at Orana, Liddell and Smithfield that independent analysts say could cover the shortfall identified by AEMO.

She said talks were continuing with Origin. “The government is talking with Origin about what the options are for extending for a period of time,” she said. “None of that has been finalised, and as I have said all along, I don’t want Eraring open one more day than it needs to be.”

Sharpe was speaking as she announced that government would request government agencies dial down some electricity use, and would urge others to do the same, on Thursday as the state faced its first major heatwave on a working day at the start of what is expected to be a challenging El Nino summer.

Later on Thursday, AEMO – having already forecast an LOR2 (lack of reserve 2) for the evening peak, sought interest from providers of emergency reserves in case of a shortfall. But there were not deployed as pressures eased on the grid, the LOR2 event was cancelled, and there was ultimately no problem meeting demand.

The NSW government is expected to announce the results of its latest tender for another 1 GW of generation and up to 600 MW of long duration storage next week.

See also: AEMO’s jaw dropping prediction for coal power: all but gone from the grid in a decade

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