Power purchase agreements
Background
In June 2023, the IFRS Interpretations Committee (IFRS IC) discussed a request about applying IFRS 9 to physical delivery contracts to buy renewable energy. The request stated that entities are experiencing application challenges and questions when applying the requirements in IFRS 9 particularly due to the unique characteristics of the renewable energy market and the related features of the long-term physical delivery contracts.
The IFRS IC concluded that the principles and requirements in IFRS 9 do not provide an adequate basis for an entity to determine the required accounting for some physical power purchase agreements in a consistent way. The IFRS IC specifically considered contracts for the purchase of a non-financial item when the underlying non-financial item cannot be stored and has to either be consumed or sold within a short time in accordance with the market structure in which the item is bought and sold.
The IFRS IC therefore recommended that the IASB consider undertaking a narrow-scope standard-setting project that addresses the application of the ‘own use’ exception in IFRS 9 to such agreements. Outreach confirmed that similar questions arise regarding the accounting for virtual power purchase agreements.
Current status of the project
An exposure draft of proposed amendments was published on 8 May 2024 with comments requested by 7 August 2024.
Project milestones
| Date | Development | Comments |
|---|---|---|
| June 2023 | IFRS IC discusses issue and decides to refer it to the IASB | |
| July 2023 | Issue first discussed by the IASB | |
| 8 May 2024 | IASB/ED/2024/3 Contracts for Renewable Electricity (Proposed amendments to IFRS 9 and IFRS 7) published | Comments requested by 7 August 2024 |
