Will electricity prices go up when Australia’s biggest coal plant closes?

Australia’s largest coal-fired power plant which provides NSW with 20% of its electricity needs will close seven years earlier than expected, prompting fears of an electricity price hike — but how worried should we be?

Origin Energy has confirmed it’ll close its Lake Macquarie coal-fired power plant Eraring by August 2025, citing the plunging cost of renewable energy, with plans to refit the site with a mega-battery.

“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,” Origin Energy chief executive Frank Calabria said in a statement.

The NSW government has promised to bolster energy sources to make up for the expected shortfall from the move, including promising the state would build the “biggest battery in the southern hemisphere” in response.

But the news took the federal government by surprise, according to Energy Minister Angus Taylor, who told 2GB this week he was “bitterly” disappointed by Origin’s decision.

Taylor argued the 700-megawatt Waratah super battery that “lasts for two hours” can’t replace a 2800 megawatt coal fire power station.

But his NSW counterpart Matt Kean — who has a frosty relationship with the federal government — rejected Taylor’s complaining, saying “he knows full well that we’ll be unlocking existing supply — it’s not a battery replacing a power station”.

Calabria said Origin was confident that announced plans for new gas-fired power plants, pumped hydro and batteries “will be more than enough to compensate for the exit of Eraring”.

So could the price of electricity rise for consumers and businesses? It all hangs on the way the transition is managed between government and the private sector.

Kean says keeping costs low is a top priority for the NSW Liberal-National government.

“What we’re focused on is ensuring that we have enough firm rated capacity in the system to be able to keep the lights on and put downward pressure on electricity prices,” Kean says.

The AEMO told SmartCompany “the changing generation mix saw zero or negative spot prices occurring during 16.6% of all dispatch intervals during the December quarter”.

It was “a total of 11.2% for 2021, more than doubling 2020’s average of 4.9%”, the spokesperson added.

Taylor said it would leave a “considerable gap” in reliable electricity generation, pointing to the 85% spike in wholesale power prices when the Hazelwood generator in Victoria shut in 2017.

“Closure without like-for-like replacement puts affordability and reliability at risk,” Taylor said in a statement.

When probed over the question, Kean told The Australian “obviously, there will be pressure on prices”, continuing that “it will be nowhere near the pressure that we saw when Hazelwood exited, but we do think there will be price pressures in the first year”.

Could the big battery help relieve those price pressures? Shadow spokesperson for climate Chris Bowen thinks so — he welcomed the NSW Coalition’s move to “bring forward a new generation capacity to ensure affordability”.

To see a smoother transition, the Clean Energy Council is urging the next federal government to establish a new authority with at least $1 billion in funding to invest in transition initiatives in coal communities across Australia.

“The clean energy transition can be transformative for Australia’s regional communities, not only providing low-cost, renewable energy to consumers, but also providing long-term employment pathways in the clean energy sector,” the Council said in a statement.

Origin’s announcement follows AGL’s decision to bring forward the closure of its Bayswater generator in NSW from 2035 to 2033, while the closure of coal-fired Loy Yang A plant in Victoria has been brought forward from 2048 to 2040-45.