The Renewable Energy Target works by creating a market for renewable energy certificates.

Accredited renewable energy power stations can create large-scale generation certificates. One large-scale generation certificate is equivalent to one megawatt hour of eligible renewable electricity generated above the power station's renewable power baseline.

Owners of small-scale renewable energy systems can create (or assign their right to create) small-scale technology certificates for eligible solar water heaters, air source heat pumps, and small-scale solar panel, wind and hydro systems. One small-scale technology certificate is equivalent to one megawatt hour of renewable electricity generated by small-scale solar, wind or hydro systems, or electricity displaced (no longer required from the grid) by solar water heaters or air source heat pumps.

The market for certificates

The creation of large-scale and small-scale renewable energy certificates creates the 'supply' side of the market. The Renewable Energy (Electricity) Act 2000 requires liable entities (usually electricity retailers) to source renewable energy certificates. This creates the 'demand' side of the market. To meet their obligation, liable entities purchase and surrender a certain number of renewable energy certificates to the Clean Energy Regulator each year, or pay a shortfall charge. Read more details about liable entities.

There is also a secondary market for certificates that does not involve the Clean Energy Regulator, and includes financial institutions, traders, agents and installers. This secondary market has matured since 2001 and is quoted on a range of trading platforms.

The Clean Energy Regulator liaises with market participants to help them understand the workings of the scheme and ensure an efficient market for renewable energy certificates. More details about stakeholder and client engagement. More details about certificate activity in 2014.