Australia’s Loy Yang A power station will remain available to operate until mid-2035 under an agreement signed between its owner AGL Energy and the Victorian government aimed at providing certainty to workers, the community and industry.
In a separate development, EnergyAustralia said it would shift its Mount Piper coal-fired power plant – New South Wales’s newest – to a “reserve role” to be used “only as needed” before its scheduled 2040 closure date.
AGL on Monday said it had signed a so-called structured transition agreement with the Victorian government for the operation, maintenance and retirement of its Loy Yang A power station and nearby brown coalmine in the Latrobe Valley.
The plan would support “the respectful, orderly and constructive retirement” of the plant and mine, Markus Brokhof, AGL’s chief operating officer, told a media event. Along with $50m to support the transition, the agreement would provide “certainty and clarity to all employees, communities, the energy market and the state government”, he said.
Lily D’Ambrosio, Victoria’s energy minister, said Loy Yang A had been “part of the fabric of this community for many, many decades”, and the package would provide workers with payments “over and above existing entitlements”.
The agreement will be “keeping the lights on while we build renewables and storage capacity to reach our government’s target of reaching 95% of renewable electricity generation by 2035”, D’Ambrosio said, adding there were no payments to AGL to keep the plant open nor to close it early.
AGL last September flagged its plans to bring forward Loy Yang A’s closure by a decade to 2035 after facing pressure from billionaire shareholder Mike Cannon-Brookes to quicken the decarbonisation effort.
While the Atlassian co-founder had been pushing for an earlier end date of 2033 or sooner, Cannon-Brookes is understood to have softened his stance in the interest of energy security of the grid if fossil fuel plants exited too soon.
Guardian Australia approached Cannon-Brookes for comment.
While the agreement sets an end date for Loy Yang A, the agreement “allows for scenarios” for an earlier closure “with agreement from the state, including if the power station is not needed for the reliable and secure supply of electricity in Victoria”, AGL said.
Australia’s coal-fired power stations are mostly nearing the end of their design life, and have typically found it harder to compete against renewable energy particularly during the middle of the day when wholesale power prices routinely drop to zero or below.
Delays and cost overruns in major transmission projects such as the Marinus Link between Tasmania and the mainland and storage projects such Snowy 2.0 have raised calls for remaining coal plants to remain open for longer.
Also on Monday, EnergyAustralia said its Mount Piper power plant near Lithgow, west of Sydney, would “transition to a reserve role in the national electricity market, used only as needed”.
“Such a role will not stand in the way of renewables firming coming into the system,” the Hong Kong-owned company said. “Rather, we see this role as bridging the technology gap until multi-day and seasonal storage is commercially available.”
“The timing of this change is uncertain and is dependent on the broader investment in the energy system underpinned by supportive policy settings,” it said.
There has been speculation for months in Lithgow that Mount Piper would likely close well before its present end-date of 2040.
Dylan McConnell, an energy expert at the University of NSW, said state governments in particular seem to focus on ensuring the availability of coal-fired power stations as a “strategic reserve” in case renewable energy plants aren’t built quick enough.
NSW, for instance, may soon commit to keep Origin Energy’s Eraring – Australia’s largest single power station – open in some form beyond the present August 2025 closure date.
Such arrangements might mean a plant is “technically there and available for an emergency but actual generation and emissions might be quite low”, McConnell said.
The NSW government is expected to release a “health check” of its power sector, including possible plans for Eraring’s extension, before the end of August.
Critics of the AGL agreement include David Hodgett, Victoria’s shadow energy minister, who said the state needed a “commonsense plan to build new energy generation and upgrade our transmission network”.
“The Andrews government has promised much, but delivered very little on energy,” Hodgett said. “With [the] premier’s flagship [State Electricity Commission] having no projects, no partners and no plan, Victorians will continue to face higher energy bills at a time they can least afford it.”
The Victorian Greens, meanwhile, urged the government to quicken Loy Yang A’s exit from the grid sooner than 12 years’ time.
They called on the government to come “clean on the ‘risk sharing mechanism’ included in today’s announcement, and whether it involves Victoria taking on the financial risk of keeping one of the state’s outdated polluting brown coal power stations running longer than its private owner otherwise would”.
Charley Brumby-Rendell, a senior lawyer with Environmental Justice Australia, welcomed the plan to support workers but said “we’re concerned there is a serious lack of certainty around mine rehabilitation”.
“Any meaningful transition agreement must include plans for the future of the Loy Yang mine site,” Brumby-Rendell said. “Right now, it’s a gigantic gaping mine pit with highly toxic coal ash dumps.”
