Energy experts have hosed down concerns the early closure of Australia's largest power station could spark electricity price spikes and throw the security of the grid into peril.
As federal Energy Minister Angus Taylor warned the exit of the coal-fired Eraring power station could lead to a breakout in electricity prices, industry observers said the effect was likely to be more muted.
Power provider Origin yesterday stunned the market by announcing it would shutter the 2,880MW Eraring plant near Newcastle in 2025, seven years earlier than expected.
Frank Calabria, the boss of the ASX-listed energy giant, attributed the decision to the upheaval in the National Electricity Market (NEM) where renewable energy was flooding onto the system and smashing the viability of coal-fired plants.
A 700MW battery to be built at the site by Origin would partly offset the closure, while the New South Wales government also affirmed plans to build another 700MW battery in the Hunter Valley.
"Australia's energy market today is very different to the one when Eraring was brought online in the early 1980s," Mr Calabria said.
Eraring 'writing on the wall'
Matt Rennie, who co-founded energy advisory firm Rennie Partners, said the announcement by Origin betrayed the extraordinary pace of change sweeping across the grid.
Mr Rennie said power stations such as Eraring were designed to run around the clock but they were increasingly being forced to reduce output or switch off entirely as cheaper renewable energy entered the market.
"They were designed to be inflexible, which was a mainstay of the electricity system for 50 years," Mr Rennie said.
"So their greatest strength has actually ended up being their greatest weakness at a time when flexibility is becoming king.
"Coal-fired generation finds itself in a situation where it can't make money during the middle of the day and it's increasingly harder to make money towards the end of the day as well.
"It needs to run all the time… so if you can't make enough money on a 24-hour period making electricity and selling it to the market you have to think about how long you can continue to do that for."
According to Mr Rennie, the earlier-than-anticipated exit of Eraring would not pose a problem for the security of the grid because there was sufficient time for new capacity to be built.
Critical to this, he said, was the notice period Origin was required to provide ahead of the closure, as well as the investment signals that would be sent to the market.
Price spike 'unlikely'
Mr Rennie said the gap left by Eraring was likely to be filled by a combination of renewable energy projects such as wind and solar farms, along with large-scale batteries.
"The cost of renewables is coming down all the time and the cost of firming those renewables is coming down all the time," he said.
"Also, wholesale energy doesn't really contribute a huge amount to the retail bill, at best it's something like 20 per cent.
Dylan McConnell, a research fellow at the University of Melbourne, suggested the loss of such a big source of supply could put upward pressure on electricity costs, but said the effect was unlikely to be significant.
Dr McConnell dismissed comparisons between the impending closure of Eraring with the 2017 decision to shut Victoria's Hazelwood power station, which partly led to a massive jump in wholesale prices.
He said Hazelwood's owners only gave six-months' notice ahead of the closure, leaving the market little time to adjust, while the decision coincided with a big increase in gas costs at the time.
"It's economics 101 that if you change the supply-demand balance you've got to have a change in the price outcome," Dr McConnell said.
Stability 'the bigger issue'
A larger potential risk than the economic effects was the implications for the stability of the grid, Dr McConnell said, especially given Eraring would exit the market before the expanded Snowy Hydro storage scheme came online.
He argued that while AEMO had been constantly updating its planning to bank on earlier coal plant closures, Origin's timeline for Eraring was still sooner than almost anyone had expected.
"I think a lot of people, myself included, thought the next cab off the rank in New South Wales was the Vales Point plant which is about half the size."
The Australian Energy Market Operator, which keeps the lights on across the NEM, was sanguine about Origin's announcement, saying planned new capacity would be enough to replace Eraring.
But chief executive Daniel Westerman said the decision highlighted the need to build new high-voltage transmission lines that could help accommodate the growing levels of renewable energy often hampered by constraints on the network.
Bitterly disappointed: Taylor
Mr Taylor said he was "bitterly disappointed" by Origin's announcement, arguing it would lead to higher power prices for consumers and jeopardise the security of the electricity system.
The minister said it was imperative energy companies provided power that could be called on at any time to keep the grid stable and called on Origin to replace Eraring with a "like-for-like" alternative.
He also demanded the company look after affected workers, noting coal-fired power plants and the mines that supplied them were major employers in regional areas.
"It is also bitterly disappointing for the 400 workers and communities in the Lake Macquarie region," Mr Taylor said.
Sarah McNamara from the Australian Energy Council, which represents power providers, said the announcement by Origin was "significant, if not unexpected".
"We need to ensure an ongoing coordinated approach with industry, regulators, government, and communities working together to best manage the exit of existing plant from the NEM," she said.
