Australian firms flag coal phase-out timeline concerns

Energy utilities raised concerns that Australia's coal-fired power generation phase-out might be running on an unrealistic timeline,according to submissions to the National Electricity Market (NEM) review consultation process.

Utilities AGL Energy, Alinta Energy, Delta Energy, Energy Australia, Origin Energy and Stanwell — which operate 10 of the 20 coal-fired power plants in Australia (see table) — submitted separate recommendations to the consultation launched late last year looking at wholesale market settings. This came after the conclusion of the Capacity Investment Scheme (CIS) tenders in 2027, and as Australia transitions to more renewables from its aging coal-fired plants.

The Australian Energy Market Operator (Aemo) forecast the country will exit all coal-fired generation by 2038 in its Integrated System Plan (ISP) published in 2024. But Delta Energy predicts that this timeline will not be met, and views ISP's priority as emissions reduction targets rather than a realistic timeline.

Insufficient capacity to replace the coal plants was a common issue flagged by these companies, with AGL saying this is partly because of uncertainty in the market leading to less investments. The utility plans to close all its coal plants by the end of June 2035.

AGL was Australia's largest emitter of greenhouse gas emissions in the 2024 financial year, according to the Clean Energy Regulator (CER), followed by Stanwell, Energy Australia and Origin Energy.

The transition could be supported using flexible dispatchable resources, according to Origin Energy. The coal phase-out means more variable renewable energy (VRE) is required, but VRE output will not necessarily match demand.

"The NEM review must also consider the actions to facilitate the planned retirement of coal-fired power stations from the energy system, which will still be occurring in the NEM beyond the CIS," Stanwell warned. "The urgency of developing solutions cannot be overstated, as any indecision now would result in increased government intervention later, and a disorderly and costly NEM beyond the CIS."

Gas-fired generation

A few firms view gas-powered generation as critical in the transition away from thermal coal and in maintaining system reliability. It will provide back-up in times of renewable droughts, said Stanwell and AGL, and should be noted in discussions of the forward strategy.

But Alinta Energy is cautious of the costs of gas-fired power plants, believing them to be the least costly for customers but not economically viable because of their exposure to global gas market prices. Alinta's suggestion is to reduce the market's dependence on high-cost facilities including gas-fired facilities.

Mixed views on capacity market

Some companies mentioned a capacity mechanism as a solution. Coal-fired facilities should be allowed to continue until they can be replaced, said Alinta Energy, and gas power plants are necessary. Energy Australia and Delta are calling for the NEM to stay technologically neutral in this process, keeping thermal coal exits in mind. A capacity market needs to be sustainable without government subsidies, Alinta Energy said, and exit strategies for government intervention should be clear from the beginning.

But capacity markets can lead to higher costs for customers, according to AGL, because of potential over-procured capacity.

"If a capacity mechanism was implemented, it would be important to consider the impact of any capacity incentive on the operation of the NEM and the appropriate level of the market price settings — a balance that may be difficult to strike," AGL noted.

The expert independent panel leading the review will continue carrying out consultation, and is expected to make final recommendations to energy and climate ministers in late 2025.

By Susannah Cornford