The International Accounting Standards Board (IASB) is taking a step forward in addressing the growing use of Renewable Energy Power Purchase Agreements (PPAs). These agreements, crucial for securing a stable supply of renewable electricity, pose unique accounting challenges due to the variable nature of renewable energy sources like sun and wind (excluding biomass and hydro).
In May 2024, the IASB published an exposure draft proposing amendments to IFRS 9 specifically for these contracts. The proposals aim to provide clearer guidance on how entities should account for these PPAs, ensuring consistent and transparent financial reporting.
Key Points of the Exposure Draft
Focus on Volume Risk
The proposals address the volume risk borne by the purchaser under a PPA. Since renewable energy production depends on natural factors, the purchaser may be obligated to pay for electricity even if it’s not produced (unlike traditional power sources).
Applicability
The proposals have a narrow scope, applying only to PPAs with specific characteristics, including:
Hedge Accounting Considerations
The proposals also address how these PPAs can be used for hedge accounting purposes, allowing entities to manage their exposure to electricity price fluctuations.
What’s Not Included (Yet)
The exposure draft does not currently address the accounting treatment of Renewable Energy Certificates (RECs). RECs represent the environmental attributes of the renewable electricity and are often traded separately. The IASB plans to evaluate the accounting for RECs in the future.
Impact on Businesses
The proposed amendments, if finalized, will have a significant impact on businesses entering into renewable energy PPAs. Companies will need to assess how the new guidance affects their financial statements and ensure their accounting policies are aligned with the final IFRS standard.
Looking Forward
The exposure draft is currently open for public comment. The IASB will consider the feedback received before finalizing the amendments. This initiative demonstrates the IASB’s commitment to keeping pace with the evolving energy landscape and ensuring that financial reporting reflects the growing importance of renewable energy.
Muzammal Rahim Khan is the CEO and Co-Founder of FineIT, bringing over 15 years of expertise in software development, implementation, and technical consulting across global markets including the U.S., U.K., Europe, Africa, and Asia. He has led the design and delivery of enterprise-grade solutions that modernize compliance, risk management, and financial reporting for banks and financial institutions. Under his leadership, FineIT has built flagship platforms such as Estimator9 (IFRS 9) and ContractHive (IFRS 16), empowering clients with automation, accuracy, and audit-ready confidence. Muzammal combines deep technical knowledge with strategic vision, driving innovation that bridges regulatory requirements with practical, scalable technology. His focus remains on building resilient, future-ready solutions that strengthen trust and efficiency in financial services.