Eraring extension could see NSW taxpayers covering potential losses
Key Takeaways:
The NSW state government has announced a two-year extension to the operation of the Eraring coal-fired power plant, which had been scheduled to close in 2025.
IEEFA argues that the extension could see NSW taxpayers having to cover future losses the plant might make, and reduces certainty for investors in new energy projects.
[23 May 2024] IEEFA Australia: The New South Wales (NSW) state government has today announced a two-year extension to the operation of the Eraring coal-fired power plant. Located on the shores of Lake Macquarie, the 2,880MW plant had been scheduled to close in 2025.
Johanna Bowyer, Lead Analyst, Australian Electricity at IEEFA, stated:
“The arrangement made today financially supports Eraring to operate until 2027 and allows Eraring to operate until 2029.
“It was originally due to close in 2025, and is now expected to close in 2027, so at present this is an extension of two years, but the arrangement leaves open the option to remain in operation for up to four years longer than expected.
“NSW handed over Eraring to Origin Energy in 2013, paying Origin $75 million to take it off their hands according to NSW Treasury.
“Origin enjoyed a number of years of making good profits from running Eraring and now if it faces losses, these will be transferred to NSW taxpayers.
“The arrangement announced today could see up to $225 million per year paid by the NSW government to Origin to cover any losses they might make.
“The arrangement also includes potential profit sharing between Origin and the NSW government of up to $40 million per year but this is much lower than the loss coverage.
“This looks like a historical privatisation of profits, and a potential future socialisation of losses.
“The arrangement to financially support Eraring until 2027, and allow all four Eraring units to operate until 2029, reduces certainty for investors in new energy projects.
“In future, expensive agreements like the Eraring arrangement that delay coal exits and reduce certainty for investors in new replacement capacity should be avoided.
“It will be key to pick up the pace with installing new energy projects and taking action on the demand side to ensure future coal exits occur on schedule.
“The focus needs to be on building renewables, storage and transmission, and increasing uptake of distributed energy resources as quickly as possible to support grid reliability and reduce emissions.
“Governments and AEMO need to speed up the planning approval process and grid connection process to accelerate renewables and storage projects. The current pace is too slow.
“Further, the uptake of distributed energy resources like rooftop solar, storage and demand flexibility should be accelerated. AEMOs recent report shows these assets can support reliability.
“Accelerating energy efficiency measures, like switching out resistive electric space and water heaters for more efficient heat pump-based appliances, would also support reliability.”
Media contact: Amy Leiper [email protected] +61 (0) 414 643 446
Author contacts: Johanna Bowyer [email protected]
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)
