NSW may be forced to pay $150m a year to extend life of coal-fired plant, energy expert predicts

<span>Eraring power station in Lake Macquarie, NSW. Energy analyst Tim Buckley says the government could end up subsidising the plant to keep it running.</span><span>Photograph: Blake Sharp-Wiggins/The Guardian</span>
Eraring power station in Lake Macquarie, NSW. Energy analyst Tim Buckley says the government could end up subsidising the plant to keep it running.Photograph: Blake Sharp-Wiggins/The Guardian

New South Wales may end up paying $150m a year to subsidise the extension of Australia’s biggest coal-fired power plant, money better spent accelerating the take-up of rooftop solar with storage, Tim Buckley, an energy analyst said.

It comes as the Labor government will on Thursday announce $1bn for solar panel manufacturing in Australia, with the prime minister, Anthony Albanese, travelling to the Hunter region to spruik the government’s new Net Zero Economy Authority.

Origin Energy and the NSW Minns Labor government are still negotiating whether to keep open all or part of the 2.88 gigawatt Eraring plant. In 2022, Origin said it would close the facility – which supplies as much as a quarter of NSW’s electricity – by August 2025.

Buckley said Origin failed to negotiate a coal contract longer than eight years after it took over Eraring – at a cost to taxpayers of $75m – in 2013. Governments intervened to cap soaring black coal prices in late 2022, providing $468m in subsidies for Eraring since, according to Buckley, head of advisory group, Climate Energy Finance.

Related: NSW can avoid electricity shortages without paying hundreds of millions to keep Eraring open, expert says

Based on present levels of forward electricity prices and spot thermal coal export prices, NSW electricity users would have to stump up subsidies of $120m to $150m each year, were the operation of Eraring’s four units to be extended, he said.

“Why are we, the consumers, wearing the cost of failing to make coal-supply contracts” that would have shielded Origin from coal price increases? It’s a case of ‘heads we win, tails you lose,’” Buckley said.

NSW’s power prices have typically been higher than its coal-burning neighbours, Victoria and Queensland. Renewable energy groups have also been calling for an acceleration of the rollout of solar and windfarms if the state is to meet its 2030 emissions goals and also avoid blackouts as ageing coal plants shut.

A deal between the NSW government and Origin over Eraring’s future is widely expected soon. Documents released last year indicate Origin had discussed transferring Eraring’s operating risks to the previous Perrottet Coalition government, a template that may be enacted this time around, Buckley said.

Origin disputed Buckley’s estimates, including the original cost of Eraring, the size of subsidies received, and the costs of extending the plant. Including the 2010 purchase of the Eraring Gentrade business for about $950m, the full cost was closer to $1bn rather than a government handout.

“We welcome an informed, factual, and robust conversation about the closure of Eraring,” a spokesperson said. “Unfortunately, we do not believe this report makes a meaningful contribution to that conversation as it is formulated on information and assumptions that are incorrect.

“Origin remains in active negotiations with the NSW government about Eraring’s future and both parties look forward to bringing the process to a conclusion as soon as possible,” she said.

The government highlighted an energy security report released last December by the market operator that identified a potential “a reliability gap” in the 2025-26 year should Eraring close next year and new projects not proceed as expected.

A spokesperson said discussions with Origin on plans for Eraring were ongoing.

Buckley said the market was pricing in at least a partial closure of Eraring with forward power prices in 2026 running at an 18% premium to Queensland and 74% to Victoria’s.

“[Any deal with the NSW government would likely see Origin pass both coal cost volatility and wholesale electricity price risk on to NSW consumers,” Buckley said.

Instead, the government would be better off investing in speeding up the deployment of low cost, zero-emissions solutions such as the rollout of residential and commercial rooftop solar backed up by batteries.

Given expected new interstate grid transmission links and gas peaking plants, NSW would have enough capacity to make up for Eraring’s closure, he said.

Buckley cited disclosed documents showing Origin secured an average pre-tax cashflow of $382m over the three years from 1 July 2019. “Eraring’s performance is not disclosed since, but Origin reported in [the first half of the present business year] that it doubled its underlying earnings overall,” he said.

“If ever there was a perfect case-study of the negative impacts on taxpayers of privatisation of strategic public assets, Eraring is it,” Buckley said.

Origin, though, argued that were Eraring very profitable now it would not have set a closure date.