The life of Australia’s largest coal-fired power station will be extended for at least two years under a deal that could cost NSW taxpayers more than $200 million annually.

Origin Energy has been in talks with the NSW government about extending the life of the Eraring power station after a review warned the scheduled August 2025 retirement could result in electricity shortfalls and price hikes.

In a statement on Thursday, the state government described the agreement as “temporary and targeted” in order to guarantee a minimum supply of electricity until the new expected closure date.

“A temporary extension of Eraring will provide time to deliver the renewable energy, storage and network infrastructure projects required to replace the power station,” it said.

The NSW government and Origin have agreed to an underwriting arrangement under which the state will not make any up-front payments to the energy company to operate Eraring.

Instead, Origin will need to decide by March 31 in 2025 and 2026 whether it wishes to opt in to the underwriting arrangement for the following financial year and share up to $40 million per year of any profits it earns from the facility.

If the power station operates at a loss, Origin will be able to claim no more than 80 per cent of the sum from the state government.

Those claims will be capped at $225 million each year, if the company does opt in.

Environmental groups and progressive think-tanks have long railed against Eraring receiving any lifeline.

“To keep Eraring open beyond its closure date will make the national job of decarbonising our energy grid all that much harder,” Australian Conservation Foundation climate policy adviser Annika Reynolds said.

Federal Energy Minister Chris Bowen in March said delaying Eraring’s retirement would not imperil Australia’s 2030 emissions reduction target.

Eraring was privatised under the former coalition government in a 2013 deal that resulted in Origin being paid $75 million to take over the ageing asset.

– AAP