I returned to the office on Monday after two and a half weeks in Azerbaijan, where I was attending the 29^th annual United Nations Climate Change Conference, better known as COP29.

I would describe COP as a sprawling event with a very wide audience. The main conference area is a secured zone managed by the UN, featuring high-level intergovernmental negotiations, plenary sessions, side events, and an exhibition hall showcasing country pavilions.

The conference runs for 11 days (with one rest day in the middle), with events practically on non-stop, from 8 am to 9pm each day. My photos below should give an indication of some of the things you might expect to see on the ground at the conference.

Clockwise from top left: the blue zone entrance, John Podesta opening the US pavilion, a media scrum for IAEA’s Rafael Grossi, a presentation by Octopus Energy’s Zoisa North-Bond, a press conference for German Foreign Minister Annalena Baerbock, Matt Kean on a panel at the Australian pavilion, Keir Starmer delivering a national statement, and Andrew Forrest being interviewed at the Global Renewables Hub. 

For such a broad conference, my focus was fairly narrow: to gain a better global perspective on the successes and challenges that we’re currently seeing in Australia’s energy transition. In this article I will share four high-level reflections from my time at COP29 as they relate to current trends and developments in the NEM.

1. Uncertainty over the future of the IRA, and global capital flows

The start of COP29 came just six days after the US election, where Donald Trump was re-elected as President, and Republicans secured a majority in both the House of Representatives and the Senate.

This news added significant confusion and uncertainty to the atmosphere at the conference, given that Trump withdrew the US from the Paris Agreement in 2017 – a decision later reversed by Joe Biden in 2021. Many now expect that Trump will once again withdraw from the Paris Agreement and also repeal the Inflation Reduction Act (IRA), one of Biden’s signature energy and climate policies. The IRA, introduced in August 2022, offers significant tax credits for US-based manufacturing, research, and development of renewable and nuclear energy projects. Latest estimates project that public and private investment in such projects had totaled $493B in the two years since its introduction, compared to $288B in the two years prior.

The future of the IRA was a hot topic at COP29. John Podesta, leader of the US delegation on behalf of Joe Biden, struck a more optimistic tone about its future. At several speeches and media engagements, Podesta highlighted that the IRA is popular in many Republican-held states, with more capital flowing into red states than blue states.

One of the US delegation members pointed me to this analysis from MIT and the Rhodium Group which shows that nine out of the top ten states benefiting most from IRA-related economic growth are Republican-held, where they are contributing single-digit percentage contributions to state GDP. As the Republican party holds only a slim majority in both houses, the theory/hope within the US delegation was that it may prove difficult to get all Republican congressmen and senators on board to repeal the act.

For Australia, the fate of the IRA carries implications. With nearly half a trillion dollars deployed, the policy has shaped the flow of global capital for energy projects, particularly for capital earmarked for ESG investment. Some argue that this has driven down investment appetite for projects in the NEM, but has also driven up demand for critical minerals in Australia.

This dynamic was the topic of a presentation by Quinbrook’s David Scaysbrook to the Queensland Energy Club that I attended back in October last year, but has also been well summarised in this piece by the AEC. Insufficient investment (and risk) appetite in new project development in the NEM was one of the the key catalysts for the introduction of the Capacity Investment Scheme in December 2022.

2. Data centres have started to navigate electricity markets (not the other way round)

Co-location, co-location, co-location.

That was my main takeaway from a roundtable discussion titled “Is the energy sector prepared for data centres and AI?” held at the UK Pavilion on Day 3. Amongst others, that session had a panel that included:

• Steve Smith – Chief Strategy and Regulation Officer at National Grid (UK);
• Antonia Gawel – Global Director of Sustainability at Google (USA);
• Jake Oster – Director of Energy Policy at Amazon (USA); and
• Yvonne McIntyre – Vice-President of Federal Affairs at Pacific Gas and Electric (USA);

The consensus amongst the panelists, particularly between those representing Google and Amazon, was that co-location for data centres – with a BYO energy approach – is currently the most viable pathway through the grid connection process in many North American and European electricity markets.

As I mention in my next theme below, a lack of spare transmission capacity appears to be a common thread in many international markets. Both Antonia from Google and Jake from Amazon made it fairly clear that dispatchable low-emissions generation (namely, nuclear and geothermal) was core to each company’s long-term energy strategy – given the expected load profiles of the hyperscale data centres that they are preparing to build, at least in the US. Both also made mention of each company’s investment and partnerships in pursuing SMR technology R&D, through Kairos Power and X-energy respectively.

3. Congestion woes are not a NEM-specific problem

Over the two weeks, I had a number of discussions with other analysts and professionals who work within other electricity markets such as California, PJM, Germany and the UK – and it was somewhat comforting for me to hear that many characteristics of the congestion woes that we see in the NEM are not confined to our grid.

In Germany they see significant north-south transmission congestion – stemming from a very high concentration of offshore wind farms in the Baltic Sea. Within Germany’s market design, the cost of ‘re-dispatch’ is almost entirely passed on to end-consumers. The latest data here, shows that the German grid experienced 19 TWh of VRE curtailment in 2023, with €3.1B of these re-dispatch costs passed on to consumers. By comparison, we’ve calculated that the NEM had 3.7 TWh of semi-scheduled VRE curtailment throughout 2023 – but worth keeping in mind that the two countries have very different population sizes, industrial sectors, etc.

These conversations reminded me of a quote from Paul Simshauser’s State of the Network address last year (available to watch on Youtube here) – “When you go and study any electricity market over the world – if you see booms and busts associated with renewable generation, it comes down to hosting capacity and curtailment rates”.

On Day 2 of the conference I attended a presentation by Zoisa North-Bond, the CEO of Octopus Energy Generation in the UK. In order to get around congestion, the company is pursuing some fairly novel retail products compared to what we see in Australia. One of these products is a special tariff for UK residents who live within defined postcodes near certain wind farms that the company operates. The energy user receives a 20% discount on their base rate when the wind speed exceeds 0m/s on-site, and a 50% discount when it surpasses 8m/s. I am yet to do a deep dive into how tariff works behind-the-scenes and how Octopus manages the hedging – but Zoisa stated that the tariff has sold out in every area where it is available.

4. Our firming challenges are unique

From listening to national statements and chatting to delegates throughout the conference, it dawned upon me many times that Australia’s proposed transition to net zero is extremely unique.

If you ignore countries that are yet to make inroads on electricity decarbonisation or have the benefit of interconnection to other jurisdictions, Australia is the only major developed nation transitioning its electricity system towards net zero with less than 10% of its generation currently coming from hydropower and/or nuclear.

My view is that this fact (and please feel free to fact-check me and comment below) – combined with our world-leading rooftop solar penetration and hot summers – means that the NEM is fast becoming one of the most weather-dependent large electricity markets in the world. Because yes, even the state-of-charge of a battery has some relationship to weather patterns (in addition to the challenge of how accurately its owner can predict the future in order to manage finite storage levels).

On a different note, I had one exchange with a representative from the UK and asked him what he sees as the next big transition challenge further down the road. His response was focused on how the UK’s gas transmission system will adapt to changing GPG dynamics due to increasing VRE. His first remark was along the lines of “I’m not sure everyone has grasped the fact that gas molecules don’t move as quickly as electrons”  then, he added, “our gas transmission system was designed for winter, not summer… and it took over 20 years to build”.

That exchange gave me flashbacks to this last autumn, where in Australia the east-coast gas system saw a significant pinch, whilst we were in the middle of a long-running wind drought. That’s not to say that those two situations were linked, but to say that those two issues could eventually compound if they simultaneously occurred again further along the transition.

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With the learnings and musings above in mind, I left COP29 with a better understanding of how global challenges intersect with the NEM’s unique dynamics – but also, with many more questions and much more suspense about what lies ahead.