Financial reporting for power purchase agreements (PPAs) require a careful analysis of each contract as different clauses or a combination of them and the design of the electricity market can result in different financial reporting considerations and accounting treatment.
Overview of financial reporting considerations
Broadly, the following outline of applicable accounting standards need to be considered in an assessment under IFRS® Accounting Standards:
Key questions
- Is the entity operating in a gross or net pool electricity market?
- Are PPAs recognised in financial statements on signing date or commercial operation date?
- Is the buyer involved in the design and operations of the power generating asset?
- Does the buyer have the right to obtain substantially all the economic benefits from the use of asset?
- Does the buyer intend to use all of the energy purchased as part of the contract?
- Does the PPA contain embedded derivative component (floors, caps, inflation adjustments)? Is it closely related?
- Would the PPA qualify for hedge accounting treatment?
- How to determine the market electricity forward curve if it is not observable?
- How will the proposed amendments to IFRS 9 impact your PPA contract?
How we can help
Before contract signing
- KPMG specialists will conduct an in-depth review of the clauses from an accounting perspective of the contract to determine the applicable accounting treatments that are used under different scenarios. We help you understand the accounting implications when entering into a PPA contract and how it may impact your financial statements over time.
At contract signing
- KPMG specialists will assist in the preparation of accounting memos outlining the accounting treatment of the PPA over the contractual term.
- We also provide help in the set-up of your hedge accounting framework and design of formal hedge documentations, as well as building and calibrating the appropriate valuation models customized to your PPA.
At contract signing
- KPMG specialists will assist in the preparation of accounting memos outlining the accounting treatment of the PPA over the contractual term.
- We also provide help in the set-up of your hedge accounting framework and design of formal hedge documentations, as well as building and calibrating the appropriate valuation models customized to your PPA.
Get in touch
If you have any queries related to Power Purchase Agreements, please don't hesitate to contact our team below. We'd be delighted to hear from you.
Francisco Jimenez
Principal, KPMG Financial Instruments Lead
KPMG in Ireland
Simone Aranha
Associate Director, KPMG Financial Instruments
KPMG in Ireland
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The contents of this webpage are for information purpose only and does not constitute accounting advice for a specific transaction. A detailed analysis of the contract and applicable accounting requirements is necessary to ascertain appropriate accounting treatment for a PPA contract.
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