Coal reasserts himself:

First coal power increase in seven years spotlights Eraring talks

Ben PotterSenior write

Apr 3, 2024 – 12.19pm

"A surge in black coal generation in NSW during the March quarter has thrown a spotlight on tricky negotiations between Origin Energy and the Minns government over delaying closure of Australia’s largest power station, Eraring.

Origin and the government have been locked in negotiations since this past September over whether to extend the life of the 2880 megawatt coal-fired Hunter Valley power station beyond August 2025, and if so how much to compensate the energy giant for any losses due to the cost of coal purchases necessitated by an extension.

The decision to seek an extension for Eraring came just after the Australian Energy Market Operator warned the outlook for grid reliability after Eraring’s closure had deteriorated and the risk of blackouts had increased in an annual assessment of power supply and demand. AEMO reiterated the warning in a periodic report on Tuesday.

The NSW government of Premier Chris Minn is negotiating with Origin Energy to keep its giant Eraring coal power station open after August 2025.

Dylan McConnell, a senior researcher at the University of NSW, said a 6 per cent increase in black coal generation in NSW during the March quarter made it harder to make the case for closing Eraring early, especially after the closure of AGL Energy’s 1880 MW Liddell power station in April last year. Origin brought Eraring’s closure forward by seven years two years ago.

“It’s quite unusual in the year that a coal plant closes, we’ve actually got a pretty significant increase in output,” Dr McConnell said.

“In a situation where we’ve got the reliance on coal generation actually not declining and actually increasing significantly, that would presumably make it more challenging to make the case to shut it early.

“In a different world you might expect the reliance on coal to be declining and that making the calculus around shutting Eraring a bit clearer, but it’s quite a significant increase.”

Cameron O’Reilly, the Marsden Jacob energy expert who recommended the NSW government negotiate with Origin to keep Eraring open after August 2025, said National Electricity Market (NEM) prices often spiked in the March quarter, which included the hottest summer months, and generators typically planned to maximise their availability to catch the high prices.

AEMO put pressure on generators to be available in case of heat-related summer grid squeezes, and Liddell’s closure may have increased this pressure, he said, stressing that he no longer had any formal involvement or non-public information.

“This bounce-back could just as easily be reversed in quarter two if, for instance, you took them offline for maintenance, as would be normal,” Mr O’Reilly said.

He said it wasn’t necessarily a long-run trend, “but it’s probably an indication along with ASX futures for NSW coal generators that this environment is still potentially viable for them”.

Data on the NEM compiled by Dr McConnell showed a rebound in wholesale prices in the March quarter, and the first quarter-on-quarter increase in coal generation in seven years of 2.4 per cent across the five NEM states – NSW, Queensland, Victoria, South Australia and Tasmania – and the ACT.

The largest percentage and absolute increases were in rooftop and utility-scale solar generation, while gas and hydro generation fell 6.4 per cent and 8.4 per cent..."