Largest coal plant lifeline slammed as climate failure

A two-year lifeline for Australia's largest power station will buy more time for NSW to transition to renewables but taxpayers could pay up to $450 million to prop up the ageing coal plant.

Renewable-energy advocates have slammed the deal between Eraring owner Origin Energy and the NSW government, which says the extension does not amount to "corporate welfare" despite the potential hefty price tag.

Under the agreement, announced on Thursday, Origin will keep the 2.88-gigawatt plant running past its scheduled August 2025 retirement to avoid potential power shortages and price spikes.

The "risk-sharing arrangement" with the company came after months of talks amid a slower-than-expected rollout of renewable energy and backup storage in the state.

NSW needs to meet demand for power as is transitions away from coal power, Penny Sharpe says. (Bianca De Marchi/AAP PHOTOS)

"We have to keep the lights on and prices down so we can make sure renewable energy and storage and firming is in place as we manage to the exit of coal-fired power," Energy Minister Penny Sharpe said.

Under the agreement, there will be no up-front payments but taxpayers could be billed up to $225 million annually for Origin's losses if it opts into an underwriting arrangement.

Origin will need to decide by March 31 in 2025 and 2026 whether it will do so for the following financial year.

The firm will also have to hand over up to $40 million per year if it opts in and Eraring delivers a profit.

The agreement represented a "good deal for taxpayers", Ms Sharpe said.

Energy reliability in NSW faces risks from the summer of 2024 until 2028 because of delays in battery projects, the Australian Energy Market Operator says.

Eraring was privatised in 2013 with Origin paying $75 million to take over the ageing asset. (HANDOUT/GREENPEACE)

Treasurer Daniel Mookhey said the profit-sharing deal would ensure Origin "doesn't think this is an easy ride".

"It's not an act of corporate welfare on the part of the government but nor is it an act of charity on the part of Origin Energy," he said.

But Opposition Leader Mark Speakman said the agreement was full of holes and a "Swiss-cheese contract".

Eraring, which sits on the shore of Lake Macquarie south of Newcastle, was privatised in 2013 under the former government, with Origin paying $75 million to take over the ageing asset.

Origin must permanently de-register all four of Eraring's power units from the national grid by May 2029.

Chief executive Frank Calabria said the agreement meant Eraring could continue to provide reliable power during a period of "considerable uncertainty" about the rollout of renewables, transmission lines and electricity storage.

Environment groups and think-tanks have long railed against any lifeline for the power station, with one describing the deal as "coalkeeper 2.0" - a reference to a federal Morrison government-era proposal to subsidise base-load power suppliers.

The Eraring coal-fired power extension undermines climate targets, environment groups say. (DEAN LEWINS/AAP IMAGES)

The Climate Council called the extension "a failure of climate leadership".

"Every NSW taxpayer will bear the financial burden of this decision, which undermines climate targets for both NSW and Australia and delays the shift to cleaner, lower-cost energy," council economist Nicki Hutley said.

Official forecasts show NSW is expected to fall short of its emission-reduction targets for 2030 and 2035 based on current abatement measures.

Federal Energy Minister Chris Bowen said he believed Eraring "should be open not a day longer than it should be and closed not a day earlier than it should".

The Mining and Energy Union said the deal was a good decision for Eraring workers while calling on Origin to negotiate to secure coal supplies from nearby Myuna and Mandalong mines.

Employer lobby Ai Group said the deal provided a critical window for extra energy sources to be built before Eraring closed.

"This two-year deferral buys some time but not much; we have to use it well," chief executive Innes Willox said.