Power Purchase Agreements
Timeline
The IASB issued an Exposure Draft: IASB/ED/2024/3 Contracts for Renewable Electricity Proposed amendments to IFRS 9 and IFRS 7 on 8 May 2024.
Final Comment Letter
All responses received were considered when finalising the Comment Letter. The UKEB Comment Letter was published on 6 August 2024. An accompanying Feedback Statement, describing how feedback received from stakeholders was addressed, was also published on the same date.
The following relevant documents are available at the foot of this page:
- Draft Comment Letter and Invitation to Comment
- Responses from stakeholders
- Final Comment Letter
- Feedback Statement
Background
Streamlined Energy Carbon Reporting requirements (SECR), Taskforce on Climate-Related Financial Disclosures (TCFD) and associated Companies Act requirements require UK entities to disclose their greenhouse gas emissions and progress towards net zero commitments. It appears that, increasingly, entities are entering into Power Purchase Agreements (PPAs) to secure both price and a supply of renewable electricity, validated by third-party renewable energy certificates (RECs). However, there are accounting challenges as PPAs do not always currently meet the ‘own use’ exception in IFRS 9 and may therefore have to be accounted for as derivatives. In that case, currently hedge accounting cannot always be applied.
The IASB’s proposals follow a submission to the IFRS Interpretations Committee in June 2023. In the light of feedback to that submission, the IASB added a narrow scope standard setting project to its workplan in July 2023.
Key IASB proposals
The ED proposals include:
- Scope: the ED is restricted to contracts for renewable electricity where the source of electricity is nature dependent, and that expose the purchaser to substantially all the volume risk through ‘pay as produced’ features.
- ‘Own use’: clarification of factors an entity is required to consider when applying paragraph 2.4 of IFRS 9 to contracts within the scope.
- Hedge accounting: the use of a variable nominal amount of forecast electricity transactions as the hedged item in a designated cash flow hedge, using an instrument within the scope of the proposals as the hedging instrument.
- Disclosures: additional disclosure requirements for contracts within the scope of the proposed amendments.
Next steps
The IASB has added a supplementary meeting to consider feedback to this ED in August 2024. The IASB has indicated it intends to issue final amendments in Q4 2024.
UKEB meetings
- April 2023 IASB General Update
- September 2023 IASB General Update
- December 2023 IASB General Update (under climate-related matters)
- January 2024 IASB General Update
- February 2024 IASB General Update (under climate-related matters)
- March 2024 IASB General Update
- April 2024 IASB General Update and see below for the Project Initiation Plan
- May 2024 Draft Comment Letter (see below for issued draft comment letter)
- August 2024 Final Comment Letter and Feedback Statement (see below)
Outreach
The UKEB outreach on this project has included discussions with UKEB advisory groups and public consultation. For more information, see the Feedback Statement (below).
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