“The review will explicitly examine the current state of the RET spot market and whether the spot market has any implications for the deployment of large-scale projects such as wind farms,” Senator Wong said.

Senator Wong said uncertainty regarding the establishment of the Carbon Pollution Reduction Scheme could be harming market sentiment and impacting on the REC spot price.

The expanded Renewable Energy Target is designed to ensure 20 per cent of Australia's electricity comes from renewable sources by 2020.

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.

The significantly expanded targets under the RET begin on 1 January 2010, which will boost demand for RECs and growth in the renewable energy sector.

The target will increase to 12,500 gigawatt‑hours in 2010, up from 8,100 gigawatt‑hours this year, strengthening the demand for RECs.

The recent decline in the spot market REC price has prompted concern from some in the renewable energy industry.  Whilst the focus has been on the spot market, most renewable energy projects enter into long term contracts for the sale of RECs and are therefore less subject to short term fluctuations in the spot market. 

The review will look at both short-term developments in the REC market and the factors that will determine longer-term pricing.

The review is to report to COAG by the end of the year.