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As the owner of Australia's biggest coal plant locks in a closing date, others are ramping up

Australia's electricity system is undergoing the most radical transformation since its establishment. (Shutterstock: Kip Scott)

As Australians absorbed the news that the country's biggest power station was set to close by 2025 – seven years earlier than anticipated – the death of coal seemed writ large.

The decision by Origin to shutter the giant, 2880-megawatt Eraring plant follows the exit of Hazelwood power station in Victoria in 2017 and plans or expectations that other big coal-fired units in New South Wales will go within a few years.

But amid the head-spinning disruption of the electricity system in Australia, not all coal-fired power plants are being hastily shut down.

In fact, some are being upgraded or propped up by taxpayers to ensure they don't exit the market too soon and potentially throw the stability of the grid into risk.

Energy expert Tony Wood, from the non-aligned Grattan Institute, said the mixed bag of decisions on coal plants in Australia reflected the lack of a plan to deal with the massive changes already underway.

"Governments have become concerned about having enough capacity in the electricity market to deal with the intermittency of renewable energy," Mr Wood said.

"If we'd simply said, 'We don't care what technology you use, we just want to have lower emissions and it's got to still be reliable,' we could've left it to industry to work out.

"Because they've not done that they've panicked a bit, because they've seen how quickly renewable energy is creating momentum towards earlier closure and it's leading to a challenge."

Billions of dollars have been spent on new green energy projects and there will be plenty more to come. (Supplied: TransGrid)

Coal spending despite closures

Across Australia, state governments and energy companies are having to constantly reassess the economic lives of their coal-fired assets.

At the heart of those calculations is the extraordinary rise of renewable energy, which is flooding on the electricity systems across the country and hollowing out the revenues traditionally earned by fossil fuel-fired plants.

For companies such as Origin and Energy Australia, which operated the Hazelwood power plant in Victoria, the finances of coal no longer added up and the only solution was closure.

But others are arriving at different conclusions and are instead seeking to prolong the lives of coal-fired assets.

In Western Australia, state-owned power provider Synergy has been given $11 million to upgrade its ageing Muja D plant to make it more flexible.

The upgrade will allow Muja D to carry out so-called cold starts, which will enable the power station to restart more quickly when it's forced offline.

It's a similar story in NSW, where listed power giant AGL is spending tens of millions of dollars retrofitting its Bayswater power station in the Hunter Valley.

Under the changes, AGL is installing new turbines to wring more capacity out of the plant and boost its ability to cycle up or down according to the market.

In Victoria, the state government did a secret deal with the owners of the Yallourn coal-fired power plant to ensure it stayed online until 2028.

Muja power station in WA a is being revamped to make it more flexible. (ABC News: Tom Edwards)

Keeping the lights on

Mr Wood said the various deals pointed to the disorderly nature of change playing out across the electricity industry in Australia.

He said there was little doubt politicians wanted more renewable energy in the system but, in the case of Yallourn, the Victorian Government wanted to "have its cake and eat it, too".

"Tt's not because they want to have more coal in the system for any longer," Mr Wood said.

"It's because they're worried about the lights going out.

"It does seem a little bit like a government that's putting one foot on the accelerator and the other foot on the break at the same time.

"You know what happens there, right?

Dylan McConnell, a research fellow at the University of Melbourne's climate and energy college, said the key test for the owners of coal plants was whether the investment in prolonging their lives was worth it.

He said the bigger the investment required, the lower the chance it would go ahead.

Dr McConnell noted the issue was vexing the highest levels of the national electricity market (NEM), which services almost 10 million customers across the eastern seaboard.

Late last year, the Australian Energy Market Operator, which is responsible for keeping the lights on, issued a report suggesting all coal-fired power plants in the NEM would be gone by 2043.

Energy giant AGL is spending $70m upgrading its Bayswater coal-fired power plant. (Supplied: AGL)

Value of upgrades questioned

But that position was challenged last month by the Australian Energy Regulator, which queried why coal plants could not be retrofitted to extend their life-spans.

"Historically the way we operate coal plants here is we turn them on and ramp between minimum and maximum [demand], but you don't really cycle daily," Dr McConnell said.

"You can do that with some changes and some upgrades.

"It certainly seems the case, particularly for the older plants here in the NEM, is it's just not worth the cost of upgrading to that capability for what might be a couple of years' extension."

Matt Rennie, who helped found energy consultancy Rennie Partners, said the economic viability of coal power was one thing, but governments also had to consider the social costs of closing plants down.

The intermittent nature of renewable energy generation is playing havoc with coal power. (Reuters: Fabrizio Bensch)

Difficult balancing act

Mr Rennie said getting the balance right between easing out coal-fired generation and minimising the disruption to regional communities was difficult.

"I've got a lot of sympathy for governments as they think through these things," he said.

Mr Wood said the absence of a coherent national energy plan was making the transition away from coal more volatile than it needed to be.

"I think it's a very bad way to do this," he said.

"The best answer is to put in place a market structure, tell the market what you want and let them do it — but that's not what we've got.

"In the absence of that, you are left with governments doing this sort of thing … and it can look silly or good depending on your perspective."

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