Coal extension alarm

Industry wary of loophole to power station closure timing

A proposed new system that could allow state governments to seek a temporary extension to the closure dates of power stations is a disincentive to investing in much-needed renewable energy developments and should be reconsidered, the country’s energy industry has warned.

The use of coal – still the dominant energy source in Australia – is rapidly waning, and the Australian Energy Market Operator has said it expects all the traditional generators to have exited the system inside the next 15 years. But Australia is grappling with trying to build sufficient replacements as developers struggle to secure transmission access, cost blowouts and difficulty in securing local community support – stoking fears coal plants could close before there are sufficient replacements.

Coal is increasingly unprofitable, with a surge in solar generation making many generators loss-making, though profits surge when the sun goes down and demand increases. However that will fade amid a rise in batteries, which will reduce evening demand and have cheaper running costs compared to coal.

Without sufficient replacements, states could see unreliable electricity supplies and substantial price increases.

The most pressing example is in NSW, where the state Labor government is in negotiations with Origin Energy to extend the lifespan of the Eraring coal power station, scheduled to close in 2025.

States and the federal Labor government are considering a scheme that would allow those that opt in special powers to amend the closure dates, known as the Orderly Exit Management Framework.

Currently, owners and operators of coal power stations simply have to give notice of 3-½ years, and the Australian Energy Council – which represents electricity and gas companies – has urged a rethink of that time frame to avoid threatening the investment signals for renewable energy investment.

“The OEM Framework will add significant uncertainty and risk to this equation and is likely to have a depressive impact on investment at this critical point in the energy transition which undermines initiatives such as the Capacity Investment Scheme,” the council said in its submission on the scheme’s design.

The Clean Energy Investors Group also warned the OEM scheme could be gamed by coal generators. “In fact, the potential incentivisation of generators to delay triggering the framework and the absence of complete disclosure of the commercial terms shielding thermal generators from market price signals could amplify long-term uncertainty for renewable energy investors,” the group said.