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Heads I win, Tails you Lose: hand-outs for Australia’s biggest coal plant Eraring a smoking example of the folly of privatisation

by Michael West | Jan 19, 2024 | Energy & Environment, Latest Posts

Are taxpayers on the hook to bail out Australia’s largest coal plant, Eraring, after just ten years of privatisation? Michael West reports on the latest in taxpayer subsidies for fossil fuel corporations.

Heads I win, tails you lose. It is so often the case with privatisations. Politicians and bureaucrats are sweet-talked and rolled by corporations, bankers and lawyers. 

Australia’s biggest coal-fired power station, Eraring, was privatised just a little over ten years ago by the NSW government. Now, after the operator Origin Energy has luxuriated in record coal prices but can no longer afford to run the plant – it wants it closed – the government is proposing to subsidise it.

NSW Premier Chris Minns won’t talk about the details as negotiations are now afoot. At his press conference with PM Anthony Albanese and Energy Minister Chris Bowen this week, he was asked about it and ducked the question.

But analysts say there is no need for the government to subsidise Eraring because enough capacity is coming to the grid anyway. A report by Climate Energy Finance points out. 

“The NSW government’s decision on whether to extend the life of Eraring coal-fired power plant, Australia’s biggest, beyond its planned closure date of August 2025 at taxpayers’ expense, ostensibly to ensure supply, will be a hot button issue this year and has national implications for energy transition,” says Buckley.

He estimates the cost of keeping all four Eraring units operating for another two years would be $300m to $400m. That assumes current coal prices and wholesale electricity prices.

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“There is no reason why the government would pay that subsidy. Although they might end up doing a partial reserve capacity subsidy which would cost a lot less, AEMO modelling itself shows no need for subsidies.” 

AEMO did a report for Minister Penny Sharp at the end of October. The conclusions were made public at the end of December (holiday season). Based on this report, says Buckley, if NSW and the Feds deliver on new energy programs which are already in place, there is no need for further coal capacity.

“There is more than enough capacity in the pipeline”.

Taxpayers are already subsidising Eraring until the end of June due to Chris Bowen’s coal cap scheme (urgently teed up when the National Electricity Market collapsed for a week last year).

Origin pays $125/tonne (and the price of coal is now around $220/t), which equates roughly to a $60m subsidy on an annual basis.

Private operators roll government

It is fair to say that this emergency scheme has worked. Nonetheless, the government giving leg-ups to corporations has been a lose-lose outcome for the public. Besides the sale of Eraring to Origin, the last NSW government also sold the Vales Point power station in the Hunter to Trevor St Baker for $1m, who later flicked it on to a Czech businessman for $200m. 

Then there was the Shoalhaven pumped hydro storage asset, which was chucked in for free when they privatised Eraring but is now worth an estimated $120m – $200m.

In the case of Origin, they simply got caught by a rising coal price when long-term supply contracts ran out, so now Eraring is uncommercial. So it is that a private corporation which profited from privatisation, then failed to lock in supply and tried to close the plant in 2025, is now in discussions for a subsidy.

It is not all grim news, however. The federal government has managed its Capacity Investment Scheme (CIS) to develop a four-fold increase in investment. According to Buckley, there is zero cost to taxpayers unless the wholesale price drops by 40%. 

Further, electricity prices have to fall by 20-40% for the CIS to be hit at all, in which case industry and consumers benefit anyway.

So, while the financial press has been clutching pearls about a “$50b government subsidy”, they expect no hit to the Budget at all. The CIS means “heads taxpayers win, tails electricity bill payers win”.

The CEF report

There has been significant progress in the NSW electricity market transformation over recent months, with strong collaborative efforts by the NSW and Federal Governments. This gives us even more confidence in our previous analysis of July 2023 that with continued improvements and delivery on projects under development, the lights will stay on in NSW as the hyper-expensive, high-emissions, end-of-life 2.88 gigawatt (GW) Eraring coal-fired power plant, Australia’s biggest, is progressively phased out around its August 2025 closure date.

There is no case for taxpayer subsidies in the hundreds of millions to keep it open.

The Australian Energy Market Operator’s (AEMO) October 2023 Energy Security Target Monitor Report for NSW Climate and Energy Minister Penny Sharpe (released publicly in December 2023) supports our contention, showing that once federal and state capacity schemes are included, there is no NSW reliability gap forecast in any year this coming decade out to 2033, notwithstanding the on-time closure of Eraring in 2025.

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Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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