The expansion of renewable energies has progressed rapidly in recent years and is also influencing the energy procurement of many industrial companies. Power purchase agreements (PPAs) are a key instrument for companies to achieve their sustainability goals and hedge against price fluctuations. At the same time, these long-term electricity supply contracts present companies with challenges in terms of their accounting. In particular, weather-dependent energy sources such as wind and solar ensure volatile electricity production, which makes it difficult to fulfil the requirements for the application of the own use exemption and hedge accounting and often requires accounting at fair value. As a result, companies are increasingly unable to avoid unwanted fair value fluctuations in the income statement and ensure an economically adequate presentation in the financial statements.
For several years, an intensification of discussions and initiatives regarding a possible amendment of the standard has therefore been recognisable (see Corporate Treasury News (08/2023): Power Purchase Agreements: setting the course for IFRS accounting in sight? and Corporate Treasury News (04/2024): Light at the end of the tunnel? An update on the latest developments for the accounting of power purchase agreements). On 18 December 2024, the International Accounting Standards Board (IASB) finally published an amendment to IFRS 9 and IFRS 7, which deals with the accounting treatment of contracts for the supply of energy from nature-dependent sources. These amendments relate to the requirements for the application of the own use exemption and hedge accounting. In addition, the notes and disclosures to be made in accordance with IFRS 7 have been supplemented and specified. The scope of the supplementary provisions has been explicitly narrowed by the IASB so that only energy generated directly from solar, wind or hydropower may be taken into account and analogous application, for example for green hydrogen, is excluded.
- Extension of the Own Use Exemption
In accordance with IFRS 9.2.4, the scope of the own use exemption is limited to contracts that are physically fulfilled to cover own requirements and do not contain any clauses for a possible net cash settlement. According to the amendment, the prevailing market conditions in combination with historical, current and expected future trading and consumption behaviour must be taken into account in future when accounting for nature-dependent electricity supply contracts in addition to the contractual structure. In particular, the remarketing of surplus energy may in future, under certain conditions, be compliant with the application of the own use exemption. - Variable Nominalvolumen beim Hedge Accounting
The designation of a hedging relationship was previously only permitted for the hedging of a fixed nominal volume. The new regulations allow companies to designate a variable nominal volume as the hedged item in hedging relationships, provided that the fluctuations in the nominal volume are related to the fluctuations in production of the nature-dependent electricity generation of the hedging transaction. - Increased transparency requirements in accordance with IFRS 7
In future, the amendment provides for more detailed disclosures in the notes for contracts relating to electricity from nature-dependent sources. This is intended to provide readers of the financial statements with a better understanding of the economic risks resulting from the contracts and the effects on the company's cash flows. The disclosures to be made increase in particular for contracts that fall under the own use exemption and include both qualitative and extensive quantitative information, such as the proceeds realised from sell-backs.
Application of the amendment is mandatory for financial years beginning on or after 1 January 2026. Earlier application is permitted as soon as EU endorsement has taken place.
The amendment provides for mandatory retrospective application of the paragraphs relating to the applicability of the own use exemption. Existing contracts must therefore be reassessed in order to check whether they are within the scope of IFRS 9 in accordance with the new regulations. For hedge accounting, on the other hand, only prospective application is mandatory. However, existing hedging relationships may be cancelled at the time of initial application of the amendment, provided that the respective underlying and hedging transactions are designated in a new hedging relationship in accordance with the amended requirements. As the amendments to IFRS 7 may also lead to first-time disclosures in the notes, companies should familiarise themselves with the new requirements at an early stage. On the one hand, this can ensure fulfilment of the regulatory requirements and, on the other, guarantee optimal accounting for energy contracts.
Even if the scope of application was narrowly defined by the IASB, the long-awaited amendment now provides clarity for a large number of practical applications by balance sheet preparers. At the same time, there is a need for action due to a possible reassessment of PPAs previously recognised as derivatives and with regard to the disclosure requirements for own use accounting of PPAs or the new application of hedge accounting.
Quelle: KPMG Corporate Treasury News, Ausgabe 153, April 2025
Autoren:
Robert Abendroth, Partner, Finance and Treasury Management, Treasury Accounting & Commodity Trading, KPMG AG
Jeannine Widawski, Managerin, Finance and Treasury Management, Treasury Accounting & Commodity Trading, KPMG AG
