Power Purchase Agreements in Focus

On 18 December 2024, the International Accounting Standards Board (IASB) published targeted amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. These changes primarily affect the accounting treatment of Power Purchase Agreements (PPAs) tied to weather-dependent energy sources such as wind and solar. The EU adopted these amendments in June 2025 (see Regulation (EU) No. 2025/1266), making them mandatory for all companies with fiscal years ending on or after 1 January 2026.

PPAs are a key tool for companies to achieve sustainability goals and hedge against price volatility. The new rules aim to provide an economically accurate representation and reduce unintended fair value fluctuations. At the same time, they require an early review of existing contracts to ensure timely compliance with the revised accounting requirements.

In our April 2025 edition (see Corporate Treasury News 04/2025: New accounting rules for electricity contracts based on natural resources under IFRS 9 and IFRS 7), we discussed the implications for PPA accounting in detail. The adjustments focus on three main areas:

• Own Use Exemption: the exemption for own use can now apply to weather-dependent energy sources even if companies occasionally sell excess electricity due to market conditions, provided the new Net Purchaser criterion is met.
• Hedge Accounting: the amendments introduce relief for establishing hedging relationships. PPAs can serve as hedging instruments even when the designated electricity volume is variable.
• Expanded Disclosures: new IFRS 7 disclosure requirements apply to ensure transparency regarding the impact of PPAs on financial position and cash flows.

The amendments are mandatory for fiscal years beginning on or after 1 January 2026. Early adoption is permitted but not required. Important: the own use exemption must be applied retrospectively, meaning existing contracts will need to be reassessed for accounting purposes.

• Start contract analysis: Check whether your PPAs meet the new criteria for the own use exemption.
• Reconsider hedge accounting: Explore the new options for hedging relationships, especially if the own use exemption cannot be applied.
• Update reporting: Prepare for expanded disclosure requirements and ensure all necessary data and information are available.

These changes are far from minor – they represent a substantial shift in the accounting rules for Power Purchase Agreements. Early analysis and preparation are critical to ensure smooth implementation and avoid complications down the road.