(Bloomberg) -- Origin Energy Ltd. will delay the closure of Australia’s largest coal-fired power station amid concerns renewable energy isn’t being added fast enough to keep pace with plans to quit fossil fuels.
The utility agreed to a request from the New South Wales government to keep operating the equivalent of two of the four units at the 2.9 gigawatt site — which accounts for about a quarter of power demand in Australia’s most populous state — until August 2027. Origin may receive compensation of as much as A$225 million ($149 million) a year from the state to help cover the cost of operations.
Origin had planned to shutter Eraring as early as August 2025 as competition from cheaper solar and wind facilities has eroded profitability. That proposal has come under pressure after Australia’s main grid operator flagged the state would face energy reliability risks as a result.
“The best way to undermine the renewable energy transition is to have the lights go out in 2025,” New South Wales Premier Chris Minns said in a statement.
Read more: How Australia Is Transforming Grids Away From Coal Power
Australia faces risks of power shortfalls in the populous southeast as coal-fired plants are phased out and because of delays to grid and battery storage projects, the Australian Energy Market Operator said earlier this week. A growing population is also boosting demand.
Sydney-based Origin rose as much as 1.1%% as of 10:09 a.m. local time. The utility has gained about 21% this year.
“We believe this agreement strikes the right balance,” Frank Calabria, Origin’s chief executive officer, said in a statement. “Origin does not shy away from the need to exit coal generation as soon as there is sufficient renewable energy, firming and transmission capacity available.”
More than 80% of Australia’s coal plants are likely to close by 2035 as a result of weaker earnings, declining reliability, and as states and companies aim to meet decarbonization targets, BloombergNEF said in an October report.
Under the agreement, Origin will be liable to generate at least 6 terawatt-hours of power during the 2026 and 2027 financial years. The utility can claim no more than 80% of the losses from the plant’s operations, and share as much as 20% of Eraring’s profit.
New South Wales state will end compensation after the 2027 financial year and the plant must retire in full by April 2029.
The task of quitting fossil fuels in Australia is being complicated by sluggish development of utility-scale renewable projects to replace the lost coal generation capacity. Investment in large-scale solar and wind fell 55% in 2023 on the prior year, according to BNEF.
Extending Eraring’s lifespan could act as a further deterrent to new projects, according to Marilyne Crestias, interim CEO of the Clean Energy Investor Group.
“This decision sends a concerning signal to renewable energy investors, potentially hindering our transition to clean energy,” she said.
Some coal sites are being earmarked for redevelopment to host clean energy infrastructure. AGL Energy Ltd. plans to build a 500 megawatt battery at the site of the retired Liddell coal-fired power plant, while Origin intends to in the future carry out a similar project at Eraring.
