In a decision that will no doubt anger those lobbying for a faster closure of Australia’s coal power stations, New South Wales' largest coal power station, Eraring, will remain operational for at least two additional years following a deal between Origin Energy and the State Government.
The agreement also includes an option to extend operations for a further two years.
Governments are currently scrambling to ensure reliable electricity supply, while moving forward with the country’s energy transition.
The latest arrangement aims to address the concerns about electricity reliability in NSW.
However, the move is not only controversial for the delay in closing the station, taxpayers may have to compensate Origin for any financial losses incurred.
“We believe this agreement strikes the right balance, with an extension to operations enabling Eraring to continue supporting security of electricity supply in New South Wales through the energy transition, while making compensation available to Origin in the event economic conditions for the plant are challenging,” Origin chief executive Frank Calabria said.
Origin to be compensated for losses
Under the terms of the deal, Origin may receive compensation if Eraring incurs losses, capped at A$225 million per year. Conversely, if Eraring profits, Origin may be required to pay NSW up to A$40 million. This compensation scheme will be in effect during 2026 and 2027.
Origin has committed to generating 6 terawatt hours (TWh) of electricity during 2025 and 2026 to mitigate concerns about power supply in NSW, which is facing potential blackouts and price hikes if Eraring was to close. The Australian Energy Market Operator recently warned of insufficient electricity reserves in NSW from 2025.
Eraring, which supplies about 25% of NSW's electricity, is seen as crucial in providing time to develop a substantial pipeline of renewable energy projects.
Criticism comes
The deal has faced criticism from environmental advocates and Origin's competitors. Delta Electricity, which operates a smaller coal power station nearby, argued that using taxpayer funds to support Eraring rewarded the company's mismanagement.
Despite Eraring's financial struggles, some market sources suggest that Origin needs the plant's generation capacity to supply its four million customers, providing an unfair advantage.
This deal is part of a broader trend in Australia, where closure agreements have been used to manage the phase-out of coal power stations. Similar deals in Victoria have been made with AGL Energy (ASX:AGL) and EnergyAustralia to keep the state's largest coal power stations open until sufficient renewable energy capacity is available.
Australian law mandates that generators give more than three years' notice before closing a coal power station. However, delays in developing renewable energy sources have led to calls for new powers allowing states to determine coal generator closures, a proposal opposed by the energy industry due to concerns about mixed signals for renewable energy development.
The deal states that Eraring will close by 2029 at the latest.