The Minns government has stepped in to save Eraring, Australia’s largest coal-fired power station, extending its operating life until August 2027.
Under the terms of the agreement, the government will not make any initial payments to the Origin Energy-owned power plant, but the company will instead decide by March 31, 2025, and 2026 whether it opts in to a risk-sharing arrangement for the following financial year.
If Origin opts in to an underwriting agreement, taxpayers would share up to $40 million a year of any profits Eraring makes. However, if Origin makes a loss, the government would support the company for a share of those losses, capped at $225 million a year.
The Minns government says taxpayers are protected by its Eraring deal.
Under the two-year agreement, Eraring must generate at least six terawatt hours each year, the equivalent to the typical annual output of two of Eraring’s four generating units and enough to resolve the forecast reliability gap.
Eraring must also maintain its existing workforce of about 220 people, commit to a maintenance plan and adhere to its licence conditions, which includes environmental protections.
Origin now expects to close Eraring on August 19, 2027.
Premier Chris Minns said he made an election commitment that Labor would extend the life of Eraring if required to “keep the lights on in NSW”.
“The people of NSW now have certainty that the NSW government has a plan to ensure we have reliable energy while we transition the workforce and the economy to net zero,” Minns said,
“The best way to undermine the renewable energy transition is to have the lights go out in 2025. I’m not letting that happen.”
The agreement will be tabled in Parliament in the next sitting week to ensure transparency.
Treasurer Daniel Mookhey said taxpayers were well-protected by the arrangement with Origin.
“We won’t be handing over a $3 billion cheque to Origin as some said we would. Instead, this agreement incentivises Origin to only use the underwrite if there is a sudden change in market conditions,” Mookey said.
“Had Eraring remained in public ownership, an agreement like this would not have been necessary. But the previous government’s decision to privatise the Eraring power station means entering into agreements like this in order to make sure the lights stay on as we speed up the clean energy transition.
Origin chief executive Frank Calabria said the company believed the agreement struck the right balance, enabling Eraring to continue supporting security of electricity supply in NSW through the energy transition, while making compensation available to Origin in the event that economic conditions for the plant are challenging.
“This agreement supports Eraring to continue to play an important role in maintaining reliable power for businesses and households through a period in which there remains considerable uncertainty about the volume and timing of new renewables, transmission and firming infrastructure coming online,” Calabria said.
“Importantly, today we can give our Eraring employees, our suppliers and the local community greater certainty around the future of the plant as we transition towards its retirement.”
The prospect of using taxpayers’ money to extend the life of Eraring puts the NSW government on course for a clash with renewable energy advocates and climate campaigners. Coal is a dominant source of greenhouse gas emissions that the world must phase out to help avert catastrophic global warming.
“There is no way Australia can meet its renewable and climate targets if we keep propping up coal-fired power stations, particularly the nation’s biggest,” said Wayne Smith, acting chief executive of the Smart Energy Council, which represents solar and battery installers.
However, with at least half of the remaining 14 coal generators on the eastern seaboard due to close within the next decade, governments are becoming increasingly nervous that not enough new renewable energy generators, storage projects and transmission lines are being built to keep power supplies and prices stable.
The Victorian government has already intervened to ensure two of its biggest coal generators do not shut prematurely.
“Australia’s great energy transition – from fossil fuels to renewables – is not going well,” said Tony Wood, energy director at research organisation the Grattan Institute.
In a report published last month, Wood foreshadowed that NSW would need to prop up Eraring until the grid was equipped to handle its withdrawal, and may also have to cut a deal to support the Bayswater coal generator.
More to come
With Nick Toscano, Mike Foley
Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.