Door ajar for earlier closure of coal power station

The agreement provides greater certainty around the Latrobe Valley power station's ongoing operations, future closure and costs, AGL said.

It sets out to avoid an unplanned closure of the plant before the scheduled date of June 30, 2035, rehabilitate its associated mine, invest in replacing the lost power generation and ensure reliable and secure power supply.

But the deal leaves the door ajar for the energy giant to pull the plug even earlier than 2035, pending the blessing of the government and Australian Energy Market Operator.

"The STA allows for scenarios where the LYA PS (Loy Yang A power station) can close earlier than 30 June 2035, with agreement from the state, including if the power station is not needed for the reliable and secure supply of electricity in Victoria (as determined by AEMO)," it said.

In September, AGL brought the closure of the Latrobe Valley power plant to mid-2035, up to 10 years sooner than planned.

Loy Yang A, one of three coal-fired plants left in operation in Victoria, generates about 30 per cent of the state's electricity.

The nearby coal-fired power plant at Yallourn is scheduled to close in 2028, with Alinta Energy-owned Loy Yang B officially set to follow by 2047.

Under the deal, AGL will continue to operate the station at agreed levels and pay $50 million for site repurposing and community activities. 

Victorian Energy Minister Lily D'Ambrosio said the package would help staff retrain, reskill and find new work opportunities close to home and deliver investment certainty.

"One of the biggest barriers for renewable energy investors is clarity around when fossil generators will close - a guaranteed closure timeline provides improved certainty around Victoria's energy demand," she said.

Nonetheless, AGL and the state government can suspend obligations under the agreement or terminate it altogether with the other party's consent.