The Renewable Energy Target works by creating a market for renewable energy certificates. Like any market, it is based on supply and demand.
A renewable energy certificate can be created for each megawatt hour of renewable energy generated or displaced.
These certificates are either small-scale or large-scale:
The Renewable Energy (Electricity) Act 2000 requires liable entities to surrender certificates to us, to meet their renewable energy obligations.
Liable entities are wholesale purchasers of electricity. They have separate obligations for both the Small-scale Renewable Energy Scheme and the Large-scale Renewable Energy Target. These obligations require them to surrender a certain number of renewable energy certificates in proportion to the amount of electricity they acquired during the year.
If liable entities do not purchase and surrender enough certificates each year, they are not compliant with the scheme and must pay a shortfall charge of $65 per certificate. This is not tax deductible.
For detailed information about liability and the percentages that determine the amount of certificates liable entities must surrender (the renewable power percentage and small-scale technology percentage) see the Number of certificates required page.
Market activity in 2015:
Owners of certificates can choose to surrender certificates for any reason. For example, supporting the generation of electricity from renewable energy sources over and above the Renewable Energy Target or meeting GreenPower obligations (a voluntary state government accreditation program). This is known as voluntary surrender.
Individuals or companies may also choose to offer certificates for surrender to offset the impacts of improper creation of certificates. If offers are made for these reasons they are considered to be non-compliance surrender offers to ensure the integrity of the scheme.
Certificates accepted for voluntary surrender are permanently removed from the market and cannot be transferred to another party or used to acquit a mandatory surrender liability under the Act.
In 2015, a total of 1 324 434 certificates (representing 114 offers) were accepted for voluntary surrender in the REC Registry. More than 98 per cent of these were large-scale generation certificates.
A total of 1 293 094 certificates were surrendered to meet GreenPower obligations.
"THE AUSTRALIAN COMMUNITY RECOGNISES RENEWABLES AS A PRACTICAL MEANS TO REDUCE GREENHOUSE GAS EMISSIONS."
Since renewable energy certificates are like a form of currency that can be sold or transferred at negotiated prices, there is a secondary market. It includes financial institutions, traders, agents and installers.
On the secondary market, large-scale renewable energy certificates and small-scale technology certificates that we have previously validated can be bought and sold.
We are not actively involved in the secondary market, but we do provide the REC Registry to facilitate transactions between parties. We also liaise with market participants to help them understand the workings of the schemes to ensure an efficient market for renewable energy certificates.
The Small-scale Renewable Energy Scheme has no set target. This means it is driven by supply, with demand set annually to equal the expected supply through the small-scale technology percentage (see page 54).
To provide liquidity to the market, a small-scale technology certificate clearing house provides certificates at a fixed price of $40, effectively setting a maximum price and ensuring sufficient certificates are always available for liable entities to meet their obligations.
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The Clean Energy Regulator is a Government body responsible for accelerating carbon abatement for Australia.