PERTH (miningweekly.com) – Energy producer and distributor Origin Energy on Thursday flagged the early retirement of its Eraring power station from 2032 to 2025, in New South Wales, saying coal-fired generation was no longer sustainable.

The company has submitted a notice to the Australian Energy Market Operator (AEMO) indicating the potential early retirement of Eraring power station at the end of the required three-and-a-half-year notice period.

“Origin has today submitted notice to AEMO for the potential early retirement of Eraring power station in August 2025,” Origin CEO Frank Calabria said.

“Origin’s proposed exit from coal-fired generation reflects the continuing, rapid transition of the national electricity market (NEM) as we move to cleaner sources of energy. Australia’s energy market today is very different to the one when Eraring was brought online in the early 1980s, and the reality is the economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower-cost generation, including solar, wind and batteries. 

“To enable Origin to support the market’s continued transition to renewables, we intend to utilise the Eraring site beyond any retirement of the coal-fired power station, with plans to install a large-scale battery,” Calabria said.

“We have carefully weighed Eraring’s future for some time, which has included extensive consultation with the New South Wales government to identify what options might exist for the future of the plant. Eraring is a high-quality asset, run by a skilled and dedicated team, that has worked tirelessly to supply reliable and affordable energy in New South Wales for four decades. However, it has become increasingly clear over the last few years that the influx of renewables has changed the nature of demand for baseload power. 

“At the same time, the cost of renewable energy and battery storage is increasingly competitive, and the penetration of renewables is growing and changing the shape of wholesale electricity prices, which means our cost of energy is expected to be more economical through a combination of renewables, storage and Origin’s fleet of peaking power stations. 

“The mechanisms are now in place to guide future investment in supply, including the New South Wales Roadmap, and firm commitments have been made for other dispatchable capacity to come into the market over the coming years, as well as new transmission infrastructure, which are expected to more than compensate for any exit of Eraring. 

“We will continue to assess the market over time, and this will help inform any final decisions on the timing for closure of all four units,” Calabria said.

“We acknowledge this news will be challenging for many of our colleagues, suppliers and the local community. This is only the start of the process, and we commit to consulting with our people, and supporting them.”

As part of any replacement plan for Eraring, Origin has well-progressed plans for a battery of up to 700 MW located on the site. The company is hoping to participate in the New South Wales government’s Electricity Infrastructure Roadmap process to support installation of as much of this battery as possible, before any closure of the Eraring coal-fired power station.

Origin will also seek to bring online additional renewable and storage capacity, including a potential expansion of the Shoalhaven pumped hydro scheme, through the NSW Roadmap process. 

Origin’s current restoration and rehabilitation provision for the Eraring site is approximately A$240-million, based on the previous closure date of 2032. These costs will continue to be reviewed and are expected to be incurred over several years post any closure, with the timing dependent, in part, on a potential battery investment and ongoing ash dam operations. 

The ASX-listed company on Thursday said that it will consult with the Eraring workforce about the timing of any potential retirement, as well as providing a generous support package during any transition period. This will include re-skilling, career support and redeployment into new roles, where possible.

Federal Minister for Industry, Energy and Emissions Reduction Angus Taylor has called the decision "bitterly disappointing", saying it would affect a number of energy users in the region, as well as 400 workers.

“The government expects Origin to deliver on its commitment to do everything it can to support workers and the local community through this challenging period. The early and sudden closure of this 2 880 MW generator will leave a considerable gap in reliable generation in the National Electricity Market, representing more than 20% of New South Wales generation output,” Taylor said.

“This risks higher prices, like the 85% increase we saw after the closure of the Hazelwood power station, and a less reliable grid. The government has been consistent and clear. On-demand reliable power such as coal, gas and pumped-hydro is needed to balance the record levels of intermittent forms of energy such as wind and solar. 

“Dispatchable, on-demand capacity is critical to keep prices low and the grid reliable. Closure without like-for-like replacement puts affordability and reliability at risk. It is incumbent on energy companies to step up and deliver like-for-like replacement capacity. They owe this to their customers as providers of an essential service. 

“With only a short window until closure, energy companies need to back their announcements and make clear commitments to replacement projects by June 2023,” he added.

Any retirement of Eraring power station in mid-2025 is expected to remove a significant proportion of Origin’s Scope 1 emissions, delivering on the company’s commitment to help achieve the goals of the Paris Agreement, well ahead of 2030.

Meanwhile, Origin on Thursday reported a 7% increase in group revenue for the half-year ending December, which reached A$6.5-billion, while loss for the period narrowed by 28%, from a loss of A$183-million to a loss of A$131-million.

The narrowing loss reflected the one-off impairment and net capital gains tax expense associated with the $2-billion sale of a 10% interest in Australia Pacific liquefied natural gas (LNG) project. Once completed, the sale will allow Origin to both crystallise some of the value in that asset and strengthen the balance sheet, while retaining a significant shareholding.

Underlying profit increased 18% to A$268-million, driven by strong commodity prices, while underlying earnings before interest, taxes, depreciation and amortisation were lower at A$1-billion, as increased earnings from Australia Pacific LNG were offset by expected lower earnings in Origin’s Energy Markets division.

“Origin achieved a solid result in the first half given the continued economic disruptions from Covid-19 and challenging conditions in the electricity market driven by more subdued demand and lower tariffs,” Calabria said.

“The performance of Australia Pacific LNG was outstanding, achieving record-high revenue off the back of a strong rebound in commodity prices. Australia Pacific LNG delivered a first-half cash distribution of A$555-million.

“Superior field performance and an ability to keep costs low, has put the business in a strong position to benefit from the buoyant commodities market. Australia Pacific LNG is expected to distribute more than A$1.1-billion in cash to Origin for the full year, net of oil hedging.

“In Energy Markets, operating conditions remain challenging as previously guided, due to the combination of record low wholesale electricity prices in 2021 flowing through to customer tariffs in 2022, and higher wholesale energy procurement costs incurred in the current period. Specifically, Eraring has been impacted by operational constraints at one of its primary suppliers, contributing to a material increase in both coal and wholesale electricity procurement costs,” Calabria added.