Extending Eraring has still not been adequately justified

Recent news reports have stated that the Eraring coal power station, on Lake Macquarie in the NSW Central Coast, may stay open for up to four years beyond its scheduled closure in 2025.

It will potentially be subsidised for two years and be granted a further two years operation permit.

However, the case to extend Eraring by 2-4 years has not been made by the NSW Government or its owner Origin Energy, it looks to be an expensive measure, and it will make it harder to meet state and federal emissions reduction goals.

Extending Eraring has not been adequately justified.

AEMO’s 2024 Electricity Statement of Opportunities (ESOO) showed there would be no reliability gap in NSW if various federal and state government energy schemes and projects were implemented as planned. In the event they did not proceed as planned, there would be a minimal gap for a few years following the Eraring exit (191MW-285MW), which could easily be alleviated. Indeed, the first tranche of NSW projects under the Capacity Investment Scheme (CIS), totalling 980MW/2,790MWh of storage capacity and 95MW of demand response, would fill that forecast gap once they come online.

AEMO’s modelling for the NSW Minister for Energy shows that, with Eraring exiting in 2025:

• NSW easily overshoots its Energy Security Target (EST) if anticipated generation projects, anticipated or actionable transmission projects, and additional projects under federal and state schemes go ahead as planned.
• NSW breaches the EST by 757MW in 2025-26 and stays within the standard in the following years if certain projects go ahead. This includes anticipated generation projects and projects that received Long-Term Energy Service Agreements through tenders 2 and 3 (with a delay), but not all federal and state supported projects and transmission projects.
• NSW breaches the standard from 2025-26 in a situation where only existing and committed projects are included in reliability modelling.

Therefore, based on this AEMO modelling with anticipated projects included, any EST breach appears likely to be zero or minimal. Many anticipated projects are reasonably likely to go ahead, because they are sufficiently progressed towards meeting at least three of the five commitment criteria (land, contracts, planning, finance and construction).

Further, IEEFA /ITP modelling demonstrates that reliability would be maintained post-Eraring even if no new plants beyond those committed to construction came online for a year following the closure. Other coal generators, which are currently producing less than they are able to, could increase output alongside new renewable generators to account for Eraring’s exit.

Conversely, IEEFA /ITP modelling found that, if Eraring was kept open, other NSW coal power stations would suffer financially as they would struggle with low volumes, with the capacity factor of Vales Point dropping as low as 9%. Delta Electricity, the owner of Vales Point, recently warned that an Eraring delay could threaten its viability.

The NSW Government may be concerned about prices (though to IEEFA’s understanding this has not been publicly stated), but various other mechanisms could alleviate upward price pressure, such as energy efficiency, rooftop solar, household batteries and targeted bill relief measures.

In fact, the estimated cost of an Eraring extension could be significant. Annual taxpayer subsidies to Eraring have been calculated or reported to cost anywhere from $120 million per annum to $400 million per annum plus coal costs.

The subsidy would reportedly insulate Eraring from high coal costs. Even though Eraring sources black coal from local mines, local costs are influenced by international trends because Australia exports black coal. International black coal costs are still relatively high, albeit much lower than 2022 levels.

The subsidy to Origin Energy reportedly may also help pay for the expansion of the Eraring ash dam. The unlined, polluting dam is estimated to already contain 40 million tonnes of coal ash waste, and to have already leached almost 685 tonnes of heavy metals into Lake Macquarie. This has led to reported economic and health impacts, including the closure of a local sport and recreation facility due to the risk of the ash dam wall failing in a seismic activity event and limits on the consumption of seafood from the lake.

In a NSW Legislative Council inquiry submission, the NSW government acknowledged that contamination from coal ash sites “may threaten human health and the environment, limit land use or increase development costs”.

For Eraring to have somewhere to store its growing levels of ash waste, Origin plans to expand the dam to hold an additional 5 million cubic metres of ash, which would come at high cost. Origin told the NSW Legislative Council inquiry that while it had planning approval to raise the dam wall, it was yet to make a decision to proceed given the significant costs of the development. Origin has reportedly still not taken action on the dam expansion.

Not only would expanding the Eraring ash dam entail significant costs, but remediation costs of these sites once power stations close are also expected to be high. In submissions to the NSW Legislative Council inquiry, Polyagg provided an example of an American power company that was required to remove 76 million tonnes of coal ash from unlined to lined landfills, at an estimated cost of US$3.5 billion. If Eraring is extended and more coal ash is dumped, remediation costs will only increase – with NSW taxpayers expected to foot some of the remediation bill.

The extension of Eraring will have impacts on government emissions reduction goals. Eraring is one of the largest greenhouse gas emitters in the National Electricity Market (NEM). If it was kept open longer it would make it harder to meet the emissions reduction goals set by the NSW and federal government. Other sectors would have to do more heavy lifting if the electricity sector lags in reducing emissions. 

The suggested measure to extend Eraring for two years and potentially four brings uncertainty to the market, and could undermine investment in new renewables and storage.

If NSW government does extend Eraring, to keep emissions within targets and encourage investment in renewables, the arrangement should be structured so the coal plant does not generate any more power than is needed to ensure reliability. Further, to encourage investment certainty, the arrangement should also be transparent to the wider market, consumers and taxpayers.

In the longer term, rather than paying to delay the closures of coal power stations, the government, industry and consumers should focus on accelerating renewables, storage, transmission, distributed energy resources (DER) and energy efficiency. Investing in these measures (rather than short-term fixes like extending Eraring) will deliver energy security over the longer term. Governments could also explore other options to encourage reliability and market certainty, like strengthening reserve capacity or introducing financial bond mechanisms for large generating units which are ceded in the event of inadequate closure warnings or inadequate generator performance.

Keeping Eraring in the system for up to four years longer is not adequately justified based on the current evidence base, brings uncertainty to the market, would lead to significant costs for consumers, and would make it harder for governments to reach their emissions reduction goals.

This article was first published in ReNew Economy