The proposals amend IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The IASB’s swift action responds to the rapidly growing global market for these contracts.

Renewable electricity contracts aim to ensure a stable supply of renewable energy, but their reliance on natural factors makes supply consistency challenging. These contracts typically mandate buyers to purchase the generated electricity regardless of their demand at production time. This, along with the unique market characteristics, creates accounting difficulties, particularly for long-term contracts.

To address these challenges, the IASB proposes some targeted changes to the accounting for contracts with specified characteristics. The proposals would:

• address how the ‘own-use’ requirements would apply;
• permit hedge accounting if these contracts are used as hedging instruments and
• add disclosure requirements to enable investors to understand the effects of these contracts on a company’s financial performance and future cash flows.

Access the press release on the IASB’s website.