NSW Turns to Gas Peaking Plants as Coal Stations Retire 2026

Key Points

• There has been an announcement of the tendering of 1,500 MW of firming infrastructure in New South Wales. The tender is anticipated to comprise mostly of gas-fired peaking plants.
• Standalone batteries and pumped hydro have been barred from the tender through requirements for bidders to be net energy providers and supply for eight hours.
• NSW Energy Minister Penny Sharpe made the announcement at the Australian Financial Review’s Energy and Climate Summit in Sydney.
• The tender is geared towards addressing the reliability gap that is expected in 2033/34 with the retirement of Bayswater and Vales Point coal-fired power stations.
• The NSW Government anticipates a shortage of capacity of about 1.5 GW after 2033/34 following the anticipated retirement of the 2.71 GW Bayswater power station and the 1.36 GW Vales Point power station.
• The NSW independent Consumer Trustee, ASL, will run the tender.
• Consultations on the design of the tender have begun and the tender is set to launch early 2027.
• Any projects that have received support via the tender should be commissioned by 31 May 2033.
• Gas fired peaking plants have been previously allowed within the Long Term Energy Services Agreement structure in NSW, but have typically lost out in firming.

Wales (Wales Times) October 13, 2026 — Australia’s most populous state has moved to secure new gas-fired backup capacity as it prepares for the retirement of major coal-fired power stations, announcing a tender for 1,500 MW of firming infrastructure that is expected to be dominated by natural gas peaking plants.

As reported by Bloomberg and republished by Mining Weekly, NSW Energy Minister Penny Sharpe said the state would seek 1,500 MW in the tender to firm up electricity supply, with most of the capacity expected to come from natural gas peaking plants. She made the announcement at the Australian Financial Review’s Energy and Climate Summit in Sydney.

The decision marks a significant procurement choice for the Minns Labor Government. Unlike earlier firming tenders, the new process effectively rules out batteries and other energy storage systems because bidders must be net energy contributors and be able to maintain electricity supplies for at least eight hours. According to the bid documents cited by Bloomberg, those conditions exclude most storage systems.

Why Is NSW Seeking Gas-Fired Power?

The NSW Government says the tender is designed to protect electricity reliability as the state transitions away from coal. In its official announcement, the NSW Department of Climate and Energy Action said the Minns Labor Government was acting early to ensure energy security through a tender for 1,500 MW of new firming infrastructure.

The department said the state’s energy system is expected to be dominated by “cheaper and cleaner renewable energy” by the time NSW’s next two coal-fired power stations retire in 2033. However, it also said long-duration storage, including large batteries and pumped hydro, will meet most but not all reliability needs.

“Long-duration energy storage, such as large batteries and pumped hydro, will meet most reliability needs,” the NSW Government stated. “However, there will be occasional extended periods of low solar and wind generation when electricity demand is expected to exceed storage reserves.”

It is during those periods that the government expects gas-fired peaking plants to be needed. The department described peaking plants as gas-fired power stations that can be switched on when required to provide backup electricity.

What Did Penny Sharpe Say?

Sharpe said gas peakers would have an important role in keeping the lights on, even though the government is continuing to expand renewable energy and battery storage.

“We are delivering new renewable energy to power NSW and have seen a huge proliferation in battery storage, but gas peakers will have an important role to play in keeping the lights on,”

Sharpe said in the NSW Government statement.

“While gas-fired power stations will operate only occasionally, they will play a critical role in maintaining reliability during rare periods when renewable generation is low and available storage has been exhausted,” she said.

At the Sydney summit, Sharpe also acknowledged the difficulty of managing the transition while maintaining a dependable grid. As quoted by Bloomberg and Mining Weekly, she said:

“We’ve got good renewables, we’ve got good batteries, we’ve got good long duration storage, but the reality is that we have times over a longer period of time that we need that backup.”

“We’re building the airplane as it’s flying, and we can’t afford to have loss of reliability,”

she added.

Which Coal Plants Are Closing?

The tender is linked to the scheduled retirement of two large coal-fired generators: Bayswater and Vales Point. According to Argus Media, NSW is forecast to face a power capacity shortfall of about 1.5 GW from 2033–34 after the expected closure of the 2.71 GW Bayswater plant and the 1.36 GW Vales Point plant.

The NSW Government’s own announcement confirms that the state’s next two coal-fired power stations are due to retire in 2033. It says current forecasts predict a reliability shortfall in 2033–34, prompting the Energy Minister to direct a competitive tender for new firming infrastructure.

The state says it is planning seven years ahead to give industry time to develop and deliver the projects before they are needed.

Why Are Batteries Excluded?

The tender’s technical requirements are central to its likely outcome. Bidders must demonstrate a “net energy contribution,” meaning a project must increase the total volume of electricity supplied to the system rather than rely on energy drawn from the grid to deliver contracted capacity.

Projects must also be able to dispatch power when required and maintain supply for periods of at least eight hours. Argus Media reported that these conditions would exclude standalone batteries and pumped hydro.

Renew Economy reported that the tender explicitly excludes standalone batteries and pumped hydro in order to ensure sufficient new gas-fired power plants are built to deal with long periods of low wind and solar output, sometimes described as “dunkelflautes.” The outlet said the tender will seek 1.5 GW of new capacity and differs from previous state and federal firming tenders because of the net-energy requirement.

The NSW Government has not described the tender as an outright ban on all non-gas technologies. Its statement says that, while other technologies may be eligible, expert analysis has identified gas-fired peaking plants as the most likely solution.

How Will the Tender Work?

The tender will be conducted by ASL, the independent NSW Consumer Trustee. The NSW Government says consultation on the proposed tender design has opened, allowing industry participants to provide feedback before the tender is launched in 2027.

Argus Media reported that the government plans to launch the tender in early 2027 to support 1.5 GW of mostly new gas-fired power capacity. It said supported projects would need to be online by 31 May 2033.

The potential projects will be included under NSW’s Long Term Energy Services Agreement, or LTESA, framework. As reported by AAP, the agreement guarantees operators a minimum revenue floor for renewable, storage and firming projects.

AAP reported that gas projects have been permitted under the LTESA since it was legislated in 2020. However, the agency also noted that the state has since awarded several tenders for backup electricity, and natural gas generation has lost out to other technologies, predominantly battery storage systems.

What Does This Mean for Renewables?

The NSW Government says the new infrastructure will complement its investment in renewable generation, batteries, long-duration storage and transmission lines. It argues those assets are essential to keeping electricity reliable and preventing price spikes as coal-fired power stations retire.

The department said the amount of large-scale solar and wind operating in NSW has increased by more than 80 per cent since the Minns Labor Government was elected. It also said installed storage has increased 39-fold.

Coal’s share of NSW electricity has fallen sharply. The government said more than 90 per cent of the state’s electricity used to come from coal-fired power, compared with 54 per cent now.

By 2050, the NSW Government expects gas-fired power to provide around 3.9 per cent of the state’s electricity. It says gas will remain important for maintaining reliability at least cost.

How Does This Fit NSW’s Gas Policy?

The announcement follows the release of the NSW Gas Statement last week. In that statement, the NSW Government said the state’s energy system is changing rapidly as ageing coal-fired power stations are replaced by renewable energy, supported by storage and backed up by gas-fired power stations.

Argus Media reported that the NSW Government had already flagged upcoming support for gas-fired power in its Future of Gas Statement before Tuesday’s tender announcement.

The decision also places NSW’s approach in a wider political context. AAP reported that the state’s support for gas-fired power comes as its leadership differs from federal colleagues months before an election.

MacroBusiness reported that NSW plans to use a scheme designed to support renewable energy development to build new gas power plants as early as next year. The outlet characterised the move as putting the country’s largest state at odds with the Albanese government’s reluctance to underwrite new gas generation.

Background of the Development

NSW has been managing a gradual but consequential shift away from coal-fired electricity. The state government says more than 90 per cent of its electricity once came from coal, a figure that has now fallen to 54 per cent as solar, wind and storage capacity expand.

The retirement of large coal generators has created a planning challenge for governments across Australia. Coal plants have historically provided large volumes of continuous electricity, while renewable generation depends on weather conditions and storage systems must be recharged after discharge.

Origin Energy earlier this year delayed the retirement of Australia’s largest coal-fired power station by almost two years, to 2029, after the main grid operator flagged that NSW could face energy reliability risks if it closed as originally planned.

The state has previously held several tenders for backup electricity. According to Bloomberg and Mining Weekly, natural gas generation has lost those contests to other technologies, especially battery storage.

The new tender changes that procurement environment by requiring eight-hour dispatch capability and a net energy contribution. Those conditions make gas peaking plants the most likely eligible technology, even though the government says other technologies may still qualify.

Prediction: How Will This Affect Consumers and Industry?

For NSW households, the development is intended to reduce the risk of supply shortages after 2033, when Bayswater and Vales Point are due to retire. The government’s position is that gas peakers will operate only occasionally, providing insurance during rare periods when renewable output is low and storage reserves are depleted.

For electricity consumers, the effect will depend on how often the new plants run, the cost of gas at those times, and the final terms of any revenue-support agreements. The LTESA framework provides a minimum revenue floor for supported projects, which may reduce investment risk for developers but could become a cost consideration for the state.

For energy developers, the tender creates a clear commercial opportunity for gas-fired peaking projects. Companies with gas generation, fuel-supply arrangements and the ability to deliver projects before 31 May 2033 are likely to pay close attention to the consultation process and the final tender rules.

For battery and pumped-hydro developers, the net-energy and eight-hour requirements reduce the immediate prospects of winning this particular tender. However, the NSW Government continues to support batteries and long-duration storage separately, and says such technologies will meet most reliability needs.

For the broader energy transition, the announcement signals that NSW is treating gas as a reliability backstop rather than a replacement for renewable energy. The state expects renewables to dominate its future electricity system, while gas-fired generation is projected to supply about 3.9 per cent of electricity by 2050.