Economic benefits from use of a windfarm (IFRS 16)

Date recorded:


In its June 2021 meeting, the Committee discussed a request about an electricity retailer’s (customer) accounting for a power purchase agreement (PPA) in a gross pool electricity market. In the fact pattern described, the PPA swaps the spot price per megawatt of electricity the windfarm will supply to the grid—for the 20-year term of contract—for a fixed price per megawatt. It is settled net by the customer and transfers to the customer all renewable energy credits that accrue from use of the windfarm. The request asked whether, applying IFRS 16:B9(a), the customer has the right to obtain substantially all the economic benefits from the use of the windfarm throughout the 20-year term of the PPA. The staff analysed that the PPA provides the customer with neither the right to obtain electricity from the windfarm nor the obligation to purchase any particular amount of electricity either from the windfarm of the grid, and accordingly, the customer has no right to obtain substantially all the economic benefits from the use of the windfarm. The Committee members generally agreed with the accounting conclusion.

11 comment letters were received. Most respondents agreed with the Committee's analysis and observations but some of them suggested the agenda decision should include further discussion on the scope of the accounting after answering it does not contain a lease. Two respondents did not give a view and one respondent disagreed with the analysis.

Staff analysis

Some of the respondents suggested the agenda decision should highlight additional questions that would be important when accounting for the agreement by the customer and by supplier. The staff agreed that there were additional questions to consider in determining so, but the Committee considered that they should be responding to the question in the submission instead of extending beyond that question. This is because answering additional questions would generally require further information about the terms and conditions of the agreement or specific facts. In addition, there is no evidence that the matter has widespread effect or is expected to have a material effect on those affected. The staff decided not to refer to other questions to consider because they were of the view that doing so could cause confusion without any analysis. There is a risk that the agenda decision might inadvertently refer to only some of the relevant questions that would need to be considered.

The staff agreed with the comment that it would be helpful to include references to two previous agenda decisions that discussed the agreement described. The agreements discussed in those agenda decisions are the same as the one described in this agenda decision. Referring to these agenda decisions creates awareness that the Committee already discussed the application of "own use" scope exemption and the cash flow hedging requirements.

One respondent disagreed with the Committee’s analysis that the customer does not have the right to obtain the economic benefit from use of the windfarm. It considered that the customer indirectly benefits from all the market cash flows of the electricity. Its exposure to price risk is significant and the substance of the agreement should be considered in determining its accounting. The staff explained that the agreement only conveys the customer the right to the renewable energy credits but not substantially all the economic benefits from use. The agreement exposes the customer to price risk but the economic benefit from its use should be the electricity produced by the windfarm instead of the price risk to settle the difference between the fixed and spot price. Moreover, based on IFRS 16:B9, the assessment that whether a contract contains a lease is based on the rights and obligation conveyed by the contract instead of the “substance” of the contract. The staff disagreed with the respondent’s argument that the substance of power purchase agreements in a gross pool electricity market is economically the same as that of a net one because the customer in a net pool electricity market has both a contractual right to a specified volume of electricity it contracted with the supplier to purchase and has a contractual obligation to purchase it. The customer in a gross pool electricity market has no such contractual right obligation.

Staff recommendation

The staff recommended finalising the agenda decision by adding reference to two previous agenda decisions and some minor editorial changes.


Most of the Committee members agreed with finalising the agenda decision. The discussion during the meeting mainly focused on whether the referencing of the previous two agenda decisions with similar fact pattern is necessary. Also, some Committee members raised comments on the consolidation questions and "substance over form".

Some of the Committee members considered it helpful to add reference to the previous agenda decisions to remind readers of the accounting analysis/impact of other aspects of the same type of agreement. One Committee member suggested to add the clarification the second agenda decision referred to is relevant for those applying hedge accounting only. On the other hand, some Committee members were of view that the agenda decision should answer the accounting question raised on a specific transaction rather than aiming to address all potential considerations of a type of transaction broadly and holistically. Considering there is no harm in adding the references, the staff decided to keep them but to clarify that the second agenda decision is relevant only for those applying hedge accounting.

A number of the Committee members raised the comment that answering whether the customer is required to consolidate the windfarm is relevant before conducting the analysis of whether a lease exists. They suggested to add in the agenda decision that the analysis is under the assumption that consolidation is not required. The staff responded that this comment is valid for consolidated financial statements, but the retailer would still have to assess whether there is a lease in the separate financial statements. The staff therefore  suggested not to mention the consolidation issue in the agenda decision.

A few Committee members agreed with the discussion that the assessment of whether a lease exists should be based on the rights and obligations resulting from the contractual terms rather than the substance of the agreement. They said "substance over form" is valid when a particular outcome cannot be achieved due to the restrictions (e.g. prohibited by the market) on the contractual terms, which is not the case in this fact pattern. If the entity wants to achieve lease accounting, the contracts should be structured (like the contract for a net pool electricity market).

The Committee decided, by a vote of 12 out of 13, to finalise the agenda decision with the suggested changes.

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