Eraring extension recommended and Loy Yang underwritten till 2035

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The NSW government-commissioned review of the state’s electricity network has recommended an Eraring extension, Australia’s largest coal-fired power station, while the Victorian government has pledged to underwrite Loy Yang A till at least 2035. 

Soon after being elected premier, Chris Minns commissioned a review of the state’s transition to renewable energy, specifically establishing whether NSW could keep the lights on if Eraring were to close in 2025.

Premier Minns indicated he was open to extending its life.

Origin Energy owns Eraring Power Station. Commissioned in 1982, it consists of four 720 MW Toshiba steam-driven turbo-alternators for a combined capacity of 2,880 MW.

Review recommends NSW government to negotiate Eraring extension with Origin Energy

The Electricity Supply and Reliability Check Up review recommends that the government negotiate with Origin on an extension of the coal plant at Lake Macquarie, north of Sydney. 

The document says a deal with Origin should be temporary and coupled with an exit policy.

Climate Energy Finance, a think tank that advocates for a speedier transition to renewables, in July estimated that keeping Eraring open at only half of its capacity would require the NSW government to pay Origin between $200 million and $400 million a year in subsidies.

Marsden Jacob Associates carried out the review and recommended that the ongoing use of fossil fuels may be necessary to address energy shortfalls by suggesting greater recognition of the role of gas power in firming infrastructure. 

Firming or dispatchable power refers to energy that can be swiftly utilised to generate electricity when gaps in supply become apparent.

The recommendations also include potential improvements to the state’s renewable energy roadmap.

NSW government has not yet approved recommendations

The government has not yet approved a final version of the report or embraced its recommendations. NSW Energy Minister Penny Sharpe has indicated that the government’s response to the energy review will be public by the month’s end.

The review’s conclusions are anticipated to receive a positive reception among industry stakeholders concerned about projected energy shortages starting in 2027.

To some extent, concerns about these shortages have arisen due to delays in the construction of the Snowy Hydro 2.0 and the Kurri Kurri gas-fired power plant.

In July 2023, Mr Minns said that an extension of Eraring might be necessary because “the pace of renewable energy coming online in NSW has been so slow”.

He said: “We have to revisit some of the existing infrastructure, particularly when it comes to baseload power in the state because [the former government] were so slow at getting planning approvals and renewable energy zones up and running,” he said.

AGL deal avoids early Loy Yang A closure

The Victorian government has decided to provide financial support for AGL’s brown coal-fired power station Loy Yang A, until 2035.

Coal provides 60 per cent of Victoria’s power.

This is the second state government agreement with generators to avert the risk of blackouts and spiralling prices if the aging coal generators shut down before the replacement supply is built.

The agreement offers undisclosed state aid to the 2210-megawatt plant, preemptively safeguarding its operations from potential early closure due to low wholesale prices.

Victorian Energy Minister Lily D’Ambrosio said the agreement prevents an unexpected closure.

She said the Victorian government was acting to avoid a disorderly transition, with “skyrocketing” prices and social dislocation.

She said: “We need Loy Yang A to be there so we have sufficient supply to meet our needs, to keep the lights on, and to allow us to build the replacement renewable energy we are right now delivering.”

12-year notice allows renewable energy developers to ‘invest with confidence’

Ms D’ Ambrosio said the 12-year notice of closure also allows renewable energy developers to invest with confidence.

EnergyAustralia’s 1480MW Yallourn coal-fired power generator will shut down in mid-2028, as agreed in its own confidential deal with the Victorian government in 2021.

These agreements reflect the persistent concerns of looming closures faced by some of the nation’s major electricity generators. 

These generators remain essential for ensuring supply, yet they grapple with the growing integration of renewable power into the grid. This integration frequently results in wholesale prices plummeting below zero.

Questions are now being asked about Victoria’s third brown coal-fired generator, Alinta Energy, and whether they are negotiating a similar arrangement for its Loy Yang B plant.

‘Risk-sharing’ mechanism

The agreement establishes overarching predefined minimum operational availability thresholds for the generator until its closure, with specific particulars undisclosed. 

Additionally, it implements a “risk-sharing mechanism” to be activated in the event of unfavourable market conditions occurring before the planned closure date, as stated by AGL.

The agreement between AGL and the Victorian Government still allows the generator to close earlier than June 30, 2035, if the state agrees and the Australian Energy Market Operator decides it is unnecessary.

Infrastructure gaps, which can occur during the transition to renewable energy, may affect energy supply and prices in the country as well as your energy costs.

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