Australia’s largest coal-fired power station will delay closure for two years

(Bloomberg) — Origin Energy Ltd. will delay the closure of Australia’s largest coal-fired power plant over concerns that renewable energy won’t be delivered fast enough to keep pace with plans to phase out fossil fuels.

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The utility has agreed to a request from the New South Wales government to continue operating the equivalent of two of the four units at the 2.9 gigawatt plant – which accounts for about a quarter of energy demand in Australia’s most populous state – until August 2027. Origin may receive compensation from the state of as much as A$225 million ($149 million) per year to cover operating costs.

Origin had planned to close Eraring as early as August 2025 as competition from cheaper solar and wind installations reduced profitability. The proposal has come under pressure after Australia’s main grid operator signaled the state would face energy reliability risks as a result.

“The best way to disrupt the transition to renewable energy is to turn off the lights in 2025.” – New South Wales Premier Chris Minns said in a statement.

Read more: How Australia is moving away from coal power

Australia faces a risk of energy shortages in the country’s densely populated southeast as coal-fired power plants are phased out and due to delays in grid and battery storage projects, the Australian Energy Market Operator said earlier this week. A growing population also increases demand.

Sydney-based Origin was up as much as 1.1%% as of 10:09 a.m. local time. This year, the company has gained approximately 21%.

“We believe this agreement strikes the right balance,” Frank Calabria, Origin’s CEO, said in a statement. “Origin has no hesitation in the need to discontinue coal generation as soon as sufficient renewable energy, solidification and transmission capacity is available.”

In an October report, BloombergNEF said more than 80% of Australia’s coal-fired power plants were likely to close by 2035 due to weaker profits, falling reliability and the push for states and businesses to meet decarbonization targets.

Under the agreement, Origin will be able to generate at least 6 terawatt hours of energy in fiscal years 2026 and 2027. The company can claim no more than 80% of losses from the plant’s operations and share as much as 20% of Eraring’s profits.

The State of New South Wales will end compensation after the 2027 financial year and the plant must be fully decommissioned by April 2029.

The task of transitioning out of fossil fuels in Australia is complicated by the slow development of industrial-scale renewable projects to replace lost coal generation capacity. According to BNEF, investment in large-scale solar and wind energy fell by 55% in 2023 compared to the previous year.

According to Marilyne Crestias, interim CEO of Clean Energy Investor Group, extending the life of Eraring could further discourage new projects.

“This decision sends a troubling signal to renewable energy investors, potentially hindering our transition to clean energy,” she said.

Some coal plants are slated for redevelopment to accommodate clean energy infrastructure. AGL Energy Ltd. plans to build a 500 MW battery on the site of the decommissioned Liddell coal-fired power plant, while Origin intends to implement a similar project in Eraring in the future.

(Update with stock price changes in the sixth paragraph.)