The review will examine the current state of the RET spot market and whether it has any implications for the deployment of large-scale projects such as wind farms.

The price of RECs is set by the market, depending on the supply of renewable energy and demand created through the Renewable Energy Target’s annual targets.

According to Green Energy Markets, the price of RECs has recently fallen from over $50 to under $30.

A motion put forward by the Greens to change the RET legislation in order to address this issue was recently defeated by Labor, the Coalition and Family First.

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The Greens attributed the fall in prices to the oversupply of credits in the RET due to the inclusion of solar hot water, heat pumps and multiplied rooftop solar credits. They called for RECs to no longer apply to solar hot water and heat pumps, suggesting that credits from these technologies become additional to the RET.

Minister for Climate Change Penny Wong has maintained that the REC spot market is irrelevant to most renewable energy projects as the long term contracts generally entered into are not affected by short term fluctuations.

However, Greenbank Environmental CEO Fiona O’Hehir has said that this view is based on how the market used to work, not how it is operating now.

“Historically the energy retailers entered into long term Power Purchase Agreements (PPA) with renewable energy developers. More recently, since huge financial volatility and oversupply is now embedded in the REC market, no retailer will enter into a PPA. Energy retailers are loath to commit to projects where there could be such large losses,” said Ms O’Hehir.

Ms O’Hehir added “It is vital to the renewable energy industry as a whole, regardless of the technology, that we get some stability into the landscape so we can start investing capital into projects and into developing the workforce. Only then can we commit to deploying projects to meet the 20 per cent targets that have been set.”

Ms Wong said that uncertainty regarding the establishment of the Carbon Pollution Reduction Scheme could be harming market sentiment and impacting on the REC spot price, and added that the expanded 2010 RET targets could boost future demand for RECs.

The RET target will increase to 12,500 gigawatt hours (GWh) in 2010, up from 8,100 GWh this year. The review is to report to COAG by the end of December.