Prudence in NSW - but at what cost?

Hey Reader, welcome to The Energy's weekly data newsletter. This week we explore what the extension of the Eraring Power Station will mean for the transition.

Game theory of chicken

In a surprise to no-one paying attention, prudence has prevailed in NSW.

Origin Energy has postponed the closure of the giant Eraring Power Station for another 20 months, from August next year until April 2029.

Many will breathe a sigh of relief that the latest chapter in the long-running game of chicken is over for now.

But at what cost?

Advocates for a swifter transition to clean energy lament any extension to coal power stations. That's because any delay in emissions reductions slightly increases the likelihood of more frequent extreme weather events of the kinds we're already seeing — from biblical floods and fires to shrinking polar ice.

They also cite the orthodox economic argument that uncertain closure dates for coal plants are a deterrent to final investment decisions on new clean generation to replace it — the game theory of chicken.

One response to both those arguments is that if the lights go out the damage to confidence will do more to slow down the transition than a 20 month extension of one — albeit very large — coal plant in NSW.

Unsatisfactory as that may be, no-one can say they weren't warned that new generation isn't being built quickly enough, and that grid security might be at risk if Eraring closes before sufficient replacement generation is in place.

The Australian Energy Market Operator warned as much in its 2025 Transition Plan for System Security released last month.

Prices are another window on grid security and reliability; the less secure and reliable the grid is, the higher prices tend to be.

For a large state that sits at the heart of the National Electricity Market, with interconnections to Queensland, Victoria and soon South Australia, the NSW energy market sometimes seems brittle.

Lack of Reserve notices — AEMO's formal signal calling for more generation to be booted up at specific times — have been more frequent in NSW lately.

Wholesale prices have also hovered near the highest in the NEM, comparable with South Australia, the small state at the end of the NEM, and well above Queensland and Victoria.

The situation isn't expected to get better soon. ASX Energy market futures (thanks to Dylan McConnell of UNSW) project that NSW prices will stay around the highest — $20 to $30 per megawatt hour above Queensland and Victoria — through to 2030.

*NSW prices are the highest in the NEM with South Australia over the past year.*

The futures market suggests higher prices for NSW

ASX Energy futures project that NSW prices will be the highest in the NEM with South Australia right through to 2030. *Source: Dylan McConnell (UNSW), ASX Energy*

What about Yallourn?

New South Wales is a bit of a laggard when it comes to the transition to clean energy when compared to its NEM peer states, but not as bad as Queensland.

The largest state's share of renewable energy in the grid is slightly lower than average for the NEM, and its combined coal and gas share is slightly higher than average.

Queensland's renewable share is the lowest in the NEM, and its coal share is highest. Victoria's grid mix is closest to the NEM average.

But emissions are a different story.

Victoria's brown coal power stations are the nation's most polluting — a fifth to a quarter more carbon-intensive than NSW and Queensland's black coal plants — and the state is a power exporter.

That makes the emissions intensity of the Victorian grid the highest in the NEM, and raises the stakes for any decision on the future of Yallourn power station. Yallourn is less than half the size of Eraring but less flexible and considerably more carbon polluting.

The Victorian government has been emphatic that no further extension beyond the agreed (and state-funded) 2028 closure is being entertained. Victorian power prices are also among the lowest in the nation, so there's less pressure from that source.

But should the Victorian government blink, the consequences for its ambitious emissions targets would be significant.