Daniel Mookhey, the New South Wales treasurer, has issued “a very clear” warning to the owners of Australia’s biggest power station, Origin Energy.
“Origin will feel the wrath of the people in NSW if they use [negotiations over the future of its Eraring power station] as an opportunity to game the system,” Mookhey said on Wednesday. “Origin should expect this government to engage with them in a pretty tough manner.”
The fighting words come a day after the Minns government released an independent report into NSW’s energy security. The government accepted a key recommendation by the report’s author, Cameron O’Reilly, to start talks with Origin about a possible extension of the 2,880MW Eraring plant now slated to close in August 2025.
However, Mookhey’s ability to drive a hard bargain was undermined by a separate decision, announced Wednesday, to raise an extra $2.7bn in coal royalties over four years. To soften the blow to miners, the government will scrap a price cap on coal from July, making it more likely Origin will demand support to keep Eraring’s turbines turning.
A NSW department official said the government doesn’t expect the end of the $125/tonne cap to influence Origin’s decision, in part because coal only sets prices in the wholesale electricity market a “minority” of the time.
But one industry insider said every intervention altered the behaviour of market players. Coal prices were a “material X-factor” for Eraring and making the fuel more expensive would inevitably affect the underlying competitiveness of a plant that provides more than one-fifth of NSW’s power.
The premier, Chris Minns, indicated he favoured keeping Eraring open during his pre-election campaign, a stance the then incumbent Perrottet government balked at matching.
“One of the biggest challenges facing NSW is ensuring we can keep the lights on while managing the biggest change in energy mix” in the shortest time in the state’s history, Minns said in comments accompanying O’Reilly’s “check-up” report.
O’Reilly declined to comment on how the demise of the coal cap would affect Eraring’s fortunes. The government, though, has little time to secure a deal with Origin.
Workers would start to leave, plant maintenance would begin to wind down and coal supplies – now about 5-6m tonnes a year – needed to be secured.
“[I]t’s not something you can reverse at the last minute,” O’Reilly told Guardian Australia on Wednesday. “So that’s why I think starting things now was necessary.”
Frank Calabria, Origin Energy’s chief executive, has said there was no fixed date to decide Eraring’s fate but “we would like to know with about 18 months’ notice”.
“So it does mean that this year is important,” Calabria said earlier in 2023. “[I]t’s really more about orderly planning around decisions because they go to people, capital and community.”
The government is not starting from scratch. The Coalition government discussed a possible buyback of Eraring – the state sold the plant in 2013 for $50m – ahead of Origin’s announcement in February 2022 of an August 2025 closure, and got a look at its books.
O’Reilly also said the government had powers not unlike the Australian Competition and Consumer Commission to demand proof of any demands Origin made for subsidies.
“The onus is on Origin to provide the evidence that they require payment to continue with beyond 2025,” he said. “Then it’s up to the government to make an assessment of that.”
One factor in the government’s favour is that Origin is the biggest energy retailer in NSW and will have to “cover its hedge position”, O’Reilly said.
O’Reilly’s 125-page report had 54 recommendations and all but four have been accepted in part or in full by the government. Most of them go beyond Eraring, calling for a slew of measures to accelerate the rollout renewable energy, storage and transmission.
The Minns government’s first budget, to be unveiled on 19 September, will also include $1bn to set up a new energy security corporation, an election commitment.
The corporation will invest in storage such as community batteries and other projects to improve the reliability of the grid during the transition to renewables, the government will announce on Thursday.
“We want to give households and communities more power to make choices about how they generate and use energy,” the energy minister, Penny Sharpe, said.
O’Reilly said ensuring electricity remained reliable and affordable was critical for maintaining public backing of the shift to net zero emissions.
“If it gets out of control, if it gets chaotic, that’s when the people who don’t support the transition will leap on to it and say, ‘we should not be closing coal it all’,” he said.
