I suppose the question is not much should it have been closed (it should have at least 10 years prior), but rather should it have been replaced? Maybe not the full capacity?Engie (then International Power) had a plan at one stage. First part was 'Hazelwood 2030': retrofit Unit 1 with new 3-stage turbines incorporating steam reheating and a pre-combustion coal drying plant (using the German WTA process). The idea was to burn less coal (by drying it first) and generate more power from the same boiler heat input by increasing the turbine/boiler steam cycle efficiency. There was also a Carbon Capture & Storage (CCS) pilot plant in there too. If that all worked then they'd do the same retrofit on half the plant (Units 2-4).
The follow-on from 'Hazelwood 2030' was to build Hazelwood 'Unit 9' on top of Units 7 & 8, which would've been an 800MWe unit with an ultra-supercritical boiler and pre-combustion coal drying. Oh, and CCS if they got some more government handouts. Over time the idea of retrofitting existing Hazelwood units became less and less appealing (if you've ever had a look inside Hazelwood or had a chat to people who worked there, you'd know why). The 'Unit 9' plan stuck around a bit longer, but the financials got worse over time and finally Engie declared that it was getting out of coal globally. No-one was going to buy Hazelwood in its condition and the replacement plans were worthless to buyers.
Other power station owners in the Latrobe Valley have had different plans. EnergyAustralia (aka China Light & Power) was looking at building a 1000 MWe Combined Cycle Gas Turbine (CCGT) plant next door to Yallourn W. That plan is on hold despite the closure of Hazelwood - long-term gas supply contracts are getting more expensive and power prices aren't high enough to offset them.
HRL Limited (formerly the SECV Herman Research Laboratories), which owned the Morwell Briquette Factory (aka Energy Brix) had a plan to build Driffield Power Station on that site. Would've been a 600 MWe CCGT plant fuelled by syngas made with brown coal from the Hazelwood Open Cut by using Integrated Drying & Gasification (IDG) technology. It also could run on natural gas should there be an issue with the IDG plant. It also had the option of retrofitting Carbon Capture & Storage technology after the plant was built.
This plan was scuppered by activists. HRL Limited couldn't get financing in Australia thanks to their lobbying and they weren't big enough to get financing abroad.