Eraring can be closed on schedule

There is currently a lot of discussion about delaying the closure of Eraring coal-fired power station. There is no transparency about what it would take to close Eraring to the planned schedule.

The current slow pace of Australia’s clean energy transition – generation, storage and transmission build and connection – may well necessitate delays to the closure of coal-fired power stations. This would shore up reliability in the near term, but would result in higher costs and emissions over the long term. The better approach would be to accelerate the rate at which we deploy new clean energy resources. This would negate or minimise the need to extend the lifespans of coal-fired power stations, and leave energy users and the nation much better off in coming years.

Given the risks associated with the slow pace of the transition in Australia, Nexa Advisory engaged Endgame Economics to provide evidence-based insights into the likely impacts of delays to the transition and the closure of New South Wales’ ageing coal-fired power stations, specifically Eraring and Vales Point.

Summary of Findings

Several key findings emerged from the modelling and Nexa Advisory’s research.

• Risks to our power affordability, reliability and security – Our ageing coal-fired power stations are unreliable and expensive.
• Emissions targets will be missed – Extending Eraring’s closure date generates additional carbon dioxide equivalent emissions, totalling around 18.3 for a delay of two years, and 34.5 million tonnes for a delay of four years.
• Our emissions budget will be exceeded – The total cost of the emissions on our current slow pathway would be $160 billion, $31 billion more than a planned transition. Delaying Eraring’s closure contributes $2.7 billion (2-year delay) and $5.2 billion (4-year delay) to these costs.
• Consumer bills will increase –The typical consumer will pay between $4,500 and $6,000 more in total (dependent on state) over the next twenty years unless the energy transition is more effectively managed.
• Renewable energy generation targets will be missed – On our current pathway, around 60% of electricity in the NEM will be generated by large-scale renewables in 2030, making the Federal Government’s 82% target difficult to achieve without a significant acceleration.
• A domino effect – Should the closure of Eraring be delayed because replacement renewable generation is not built in time, then it is likely the scheduled closures of other coal-fired power stations will also be missed, such as Vales Point and Yallourn.

Any reliability gaps identified by the Australian Energy Market Operator (AEMO) and AEMO Services are already being addressed.

It is not too late to take the necessary actions to get back on track – if we act now and work fast, we can meet build targets and achieve the current schedule of coal-fired power station retirements.

 

Summary of recommendations

• Accelerating new capacity build by mobalising funding through the Federal Capacity Investment Scheme and Clean Energy Finance Corporation and the NSW EnergyCo.
• Bolster firming capacity through accelerated auctions to bring on “insurance” supply in Renewable Energy Zones (REZ) and amended Long Term Storage Auction (LTESA) contracts.
• Exploring long-duration storage technologies like flow batteries and liquid air energy storage to support renewable generation projects as well as delivering hybrid storage with generation projects.
• Facilitate new renewable generation and storage projects outside the REZ to take advantage of existing capacity in the transmission system and underwrite Power Purchasing Agreements to ensure a more rapid delivery of new firmed generation projects.
• Advocating for new transmission lines to support the clean energy transition, and making transmission contestability a requirement for accessing Federal funds for transmission projects.
• Distributed energy resources (DER) can play a complementary role through residential rooftop solar, however commercial and industrial DER (systems >100kW) can play a significant role immediately.

NSW already has in place all the legislative tools necessary to accelerate the delivery of REZ-related generation, storage, and transmission, and the delivery of non-REZ generation, storage and priority transmission lines.

Prioritising and accelerating the connections and statutory approvals, while maintaining rigor, for already committed and anticipated generation and storage projects would add a further 4.3 GW of firmed low carbon generation to the NSW power system. This would provide investor certainty for financial close and facilitate timely commissioning.

Beyond the Eraring Closure

While we have proposed some immediate actions above that would promote a transition to a low carbon power system, there are further approaches that need to be taken to ensure that the power system and market are ready.

The closures of Liddell and Eraring power stations provide lessons for future closures, such as Vales Point (currently scheduled for 2029).

Providing clarity to the market on when a coal-fired power station will cease operation provides developers and investors with the confidence to progress new renewable generation and storage projects.

There are a number of options for providing clarity in NSW and other jurisdictions:

1. A ministerial declaration on the dates for coal-fired power stations to cease operation would provide certainty for the owners and operators, AEMO as the power system and market operator, and developers of new generation and storage projects.
2. A legislated coal closure mechanism (national or state) would set the closure date for coal-fired power stations in legislation^[6]. There would need to be a very limited degree of flexibility around the dates, with the owners and operators of the power stations required to define a window for closure, which would narrow as the date approaches. This mechanism would need to incorporate a penalty to ensure compliance with the closure date (e.g. funds in escrow^[7],[8]).
3. A strategic operating reserve needs to be developed. This would underwrite new firmed renewable generation through an auction, established under Capacity Investment Scheme. The auction would be held five years ahead of a scheduled closure. Once constructed and commissioned, the capacity would be in reserve (off market) such that in the event of an early closure (which is desirable) or a coal-fired unit fail near the end of its life, generation can rapidly be brought into the market. This would guarantee a smooth transition for any future coal closures and reduce price volatility, without distorting investment signals for other necessary firmed renewable energy investments. The reserves could also be available to ensure the NSW Energy Security Target is met.

Here is the link to out report: Nexa Advisory – Eraring can be closed on schedule