Australia will soon reach a point where the cost of renewable energy generation, such as wind power, is less than that of coal and natural gas, EY says. Credit:AP This parity is forecast to occur the same year the renewable energy target – a scheme designed to increase the levels of renewable generation in Australia – will come to an end. Mr Colle explained that this acceleration of grid parity is caused by Australia's higher energy prices – as the more expensive local prices are, the earlier this transition occurs due to the need for affordable energy – as well as the digitalisation of networks creating a 'smarter' distribution and transmission grid. EY Oceania power and utilities advisory leader Stuart Hartley said the government's National Energy Guarantee policy, which has put the focus on the nation's energy mix, will also aid this transition. "There's a lot of good things with the new policy direction, around getting the right mix of generation sources for reliability and the carbon agenda," Mr Hartley said.

"There are incentives there around the customer side to provide affordability, but a bigger enabler to make this all work is the right encouragement to make the networks intelligent, to make this whole system work in the future." Parity will be also driven in part by grid defection, which is the process of people leaving the greater electricity network as they become energy self-sufficient and reduce their overall energy consumption. This 2020 parity target was forecast by modelling the combination of the increased installation of solar panels and battery storage in Australia, which will drive this reduction in renewable costs. "For those in the industry that still believe that [the renewable technologies] we see now will never be technically and economically equal to traditional energy solutions they should reconsider their thinking. The energy transition is accelerating. Grid parity is coming quicker than most of us in the industry expect. EY Global Power & Utilities Leader Serge Colle

"The energy transition is accelerating. Grid parity is coming quicker than most of us in the industry expect." This has been supported by a new Australian National University study, which states the net cost of electricity from new-build wind and solar power generators will be below the cost of new-build fossil fuel generators, when taking carbon emission costs into account. ANU forecast future prices of new-build renewable energy generators to fall to $50 a megawatt hour in the 2020s. Changes in gas prices may push this predicated parity date back. Grattan Institute energy director Tony Wood said while there is evidence of the LCOE from new-build wind farms competing with new-build coal plants, the lack of new coal plants means these price points are only estimates.

"If gas in Australia was near its historical cost levels or near that of the USA – of US$3 ($3.95) to US$4 per gigajoule – then gas would still be competitive for a few years yet, but that is not the case with gas at $10/GJ," Mr Wood said. "Both wind and solar would be a long way from existing coal plants for a while yet. "However, there are very few credible assessments that compare on a like-for-like basis, such as including the cost to address intermittency." Mr Colle said the evolved grid will also attract enormous investment, and governments must put in the regulatory frameworks now to enable continued funding. "This is going to be crucial to make sure that we continue to have the right behaviours to support and stimulate decarbonisation, as well as at the same time make sure that we have an affordable energy system," he said.

"Making sure that those two worlds coexist for the next 15 to 20 years, while supporting the right investments, is going to be extremely crucial." EY global power and utilities transactions leader Matt Rennie said that future investment into the space will be enormous, with EY research highlighting an increase in merger and acquisition activity across the industry. "We're seeing a huge appetite for network assets and renewable energy acquisitions," Mr Rennie said. This is driven by three factors. "Firstly, the regulatory system is well understood making it an easier place to do business; second, Australia is a low-risk destination, especially in terms of contractual protections; and third, the electricity market is well evolved, this means there is no shortage of [acquisition] opportunities," Mr Rennie said.

Loading Private equity, rather than industry, will be the most aggressive in this space. "Private equity is likely to be the biggest story in power and utilities mergers and acquisitions over the next 12 months, with corporates facing more competition from these buyers than during the past five years," Mr Rennie said.