PPA Agreements – Advisory Services
Why?
A long-term Power Purchase Agreement (PPA) can improve the predictability of energy costs and support the achievement of renewable energy targets. However, its accounting treatment in financial statements is not always straightforward. Depending on its contractual terms and structure, a PPA may fall outside the scope of IFRS 9 as an own-use contract for the purchase of electricity or may fall within the scope of IFRS 9 as a financial instrument measured at fair value.
The assessment requires a detailed analysis of the contractual terms, the offtake's consumption profile, the generation profile of the renewable energy source, the treatment of surplus electricity, and the pricing mechanism. Where a PPA falls within the scope of IFRS 9, it may also be necessary to develop a valuation model and consider the application of hedge accounting.
A robust accounting assessment helps mitigate the risk of financial statement adjustments, prolonged discussions with auditors, and unexpected volatility in reported earnings.
For whom?
We support:
- listed companies and corporate groups reporting under IFRS for which a PPA may have a material impact on the financial statements,
- energy-intensive industrial companies, including businesses operating in the chemical, food, automotive, steel and cement industries,
- data centre operators, retail chains and other organisations with significant or variable electricity consumption profiles,
- companies entering into their first PPA that want to understand the accounting implications before approving the commercial terms,
- organisations with physical or virtual PPAs involving profile mismatches, sales of surplus electricity, price indexation or contracts for difference,
- finance, treasury and controlling teams responsible for valuations, accounting policies or responses to auditor queries.
How?
PPAs are multidisciplinary by nature. We combine expertise in IFRS, financial instrument valuation and energy markets. We analyse each contract from both a financial reporting and an economic perspective, including contracted volumes, delivery profiles, pricing mechanisms and exposure to energy market risks.
You receive a consistent and well-supported accounting position, valuation assumptions and supporting documentation that can be used for period-end financial reporting and in discussions with your auditors.
Our advisory services include, among others:
- PPA Quick Diagnostic: review of a draft or executed agreement, identification of key accounting risks and recommendations on the next steps,
- own-use assessment: analysis of the purpose of entering into the agreement, expected electricity deliveries and consumption, the frequency of surplus electricity sales and the treatment of volume mismatches,
- IFRS 9 classification assessment: determining whether the contract falls within the scope of IFRS 9, whether it meets the definition of a derivative and which accounting treatment should be applied,
- financial instrument valuation: development or review of an IFRS 13-compliant fair value model incorporating electricity price curves, generation and consumption profiles, credit risk and discounting,
- hedge accounting implementation: assessment of eligibility for hedge accounting, preparation of hedge relationship documentation, effectiveness assessment methodology and the related accounting treatment,
- auditor-ready documentation: a technical accounting memorandum, description of the valuation model and key assumptions, proposed accounting entries, disclosure requirements and supporting materials for responding to audit queries.
