The New South Wales government will announce within days that it will extend the operations of Australia’s biggest coal-fired power station for as long as four more years.
The decision involves providing taxpayer subsidies to Origin Energy’s Eraring power station for two years with permits to run for two more, according to several people who have been briefed on the plans.
The cost of the subsidies is due to be discussed by the Minns government’s expenditure review committee soon. Environmental groups and local MPs were also due to be briefed on the plans later this week and prior to 10 May.
Unlike most of its competitors, Origin does not have long-term contracts for the four-unit plant. The subsidy would be aimed at capping the price of coal but may also extend to other aspects of the plant’s operations including an expansion of its coal-ash dams.
“They are responding to the demands of the fossil fuel sector,” said Tim Buckley, head of Clean Energy Finance, who has compiled reports on how NSW can retain a reliable power system without Eraring. “They will be using taxpayer funds to crowd out private capital” that would otherwise be investing in renewable energy, he said.
In March, Buckley estimated that keeping the power station operating could cost the government as much as $150m a year for just two of its four units.
The previous Perrottet government had been told it could cost the government as much as $1.6bn to keep Eraring running for 18 months, Guardian Australia has been told. That sum, though, involved capping the price of thermal coal when it was trading near its peak in the wake of Russia’s invasion of Ukraine.
“The NSW government is engaging with Origin on its plans for Eraring Power Stations and will not comment while the process is ongoing,” the energy minister, Penny Sharpe, said without elaborating.
Guardian Australia also sought comment from Origin Energy.
In an update to the ASX on Tuesday, Origin said “we remain in discussion with the NSW government on the closure date for the Eraring power station”.
A spokesperson for energy minister Chris Bowen said that, as with the federal government, “the NSW government believes Eraring should close not a day earlier or a day later than it is needed”.
“Both governments are focused on ensuring a reliable and affordable transformation of the electricity sector,” the spokesperson said, adding a recently announced capacity investment scheme auction planned for May would deliver 2.2 gigawatts of additional generation capability for the state.
James Griffin, the NSW opposition’s energy spokesperson said the government should make public the energy department’s advice on Eraring, and the full cost and timing of the government’s support.
“I think every taxpayer in NSW would expect, as the fair and right thing to do, that they are transparent about the advice they received,” Griffin said, adding the opposition would “use every means” to force a release of such details.
Stephanie Bashir, chief executive of Nexa Advisory and an energy industry veteran, said “extending the life of Eraring is a big mistake”.
“This decision by the Minns government will mean that people in NSW will be paying an additional $120-150m a year on their energy bills to keep open an inefficient and unreliable coal-fired power station,” Bashir said. “They’re already paying higher electricity bills than households and businesses in other states.”
Bashir said the subsidy would send “the wrong signal to anyone thinking about investing in renewables in NSW”.
“And it will make the Albanese government’s emission reduction targets much harder to achieve.”
Bashir and Buckley said the government had many other options to spend the subsidy in way that would reduce emissions and bolster the grid. These include accelerating the rollout of rooftop solar panels and batteries for households and homes at a time when the cost of both were plummeting.
Jacqui Mills, a climate and energy campaigner with the Nature Conservation Council of NSW, said: “We’ve heard from reliable sources that the government will in the next week announce their intention to spend millions of dollars in taxpayer money to extend the life of Eraring Coal Plant.
“This is a terrible idea that will drive up power bills for households, undermine investment in clean, renewable energy and increase NSW emissions.
“Since the government came to power they’ve been presented with countless alternatives to the extension of Eraring. Instead of investing in solutions that reduce carbon emissions and power bills, they have decided to prop up coal.”
Annika Reynolds, the Australian Conservation Foundation’s national climate policy adviser. said the extension of Eraring “would ultimately cost the community through worsening climate impacts, higher energy costs and a multi-million dollar a year bill to taxpayers”.
“The Minns government has committed to cut NSW’s emissions by 50% by 2030 and 70% by 2035,” Reynolds said.
“To keep Eraring open beyond its closure date will make the national job of decarbonising our energy grid all that much harder.”
Separately, the Australian energy market operator on Tuesday released its updated so-called medium term projected assessment of system adequacy (Mtpasa) report that identified “low reserve conditions as annual unserved energy exceeds the reliability standard” in NSW between May 2025 and May 2026.
It also declared “low reserve conditions” in NSW between November 2025 and March 2026 “when forecast demand exceeds supply under some circumstances”.
Those projected low reason conditions were based on Eraring’s closure proceeding on 19 August next year, an Aemo spokesperson said.
