IFRS 9

International Financial Reporting Standard 9, dealing with financial instruments.

IFRS 9 largely replaced IAS 39 'Financial Instruments: Recognition and Measurement'.

Accounting for contracts referencing nature-dependent electricity

"Contracts for electricity generated from nature-dependent sources such as wind or solar have become more prevalent in many entities’ carbon mitigation journey.

These contracts are often structured as long-dated power purchase agreements (‘PPAs’) that either:

• provide the purchaser with an amount of electricity generated by the nature-dependent energy source at a fixed price per unit (‘physical PPAs’), as well as environmental certificates; or
• contain an embedded swap that net settles the difference between a fixed-price cash flow and a floating-price cash flow related to an amount of nature-dependent electricity generated ('virtual PPAs’ or ‘VPPAs’), and deliver related environmental certificates.

A unique characteristic of these PPAs is that nature-dependent sources determine whether and how much electricity is generated by the referenced facility at any point in time. This has created challenges in practice in accounting for these contracts – particularly the criteria for the ‘own use’ exception in IFRS 9 for physical PPAs...

The IASB has amended the 'own use' and hedge accounting requirements of IFRS 9, and it has added targeted disclosure requirements to IFRS 7. These amendments apply only to contracts that expose an entity to variability in the underlying amount of electricity because the source of its generation depends on uncontrollable natural conditions (such as the weather). These are described as ‘contracts referencing nature-dependent electricity’."

New ‘own use’ and hedging guidance for contracts referencing nature-dependent electricity - PwC - December 2024.

Accounting and tax surprises under IFRS 9

"Corporate borrowers often need to renegotiate their existing loan liabilities, and in many companies this responsibility will fall on the treasurer.

Although treasurers may not necessarily be accounting experts, they still need to carefully consider the potential accounting impacts when renegotiating loan terms.

Under IFRS 9: Financial Instruments, loan modifications can trigger gains and losses for financial reporting purposes and may even have tax implications."

Renegotiating a loan? Get the accounting right - Kern Roberts, managing director, global accounting practice lead Chatham Financial.

See also

• Contracts referencing nature-dependent electricity
• Derecognition
• Derivative instrument
• Extinguishment
• Fair Value Adjustment
• Financial instrument
• Hedge accounting
• IAS 32
• IAS 39
• IFRS 9 hedge accounting reforms: a closer reflection of risk management?
• IFRS 15
• Impairment
• International Accounting Standards Board (IASB)
• Modification
• Non-substantial modification
• Own use
• Power purchase agreement (PPA)
• Recognition
• Renewable energy certificate (REC)
• Substantial modification
• Virtual power purchase agreement (VPPA)

Other resources

• IFRS 9 summary - IAS Plus
• IFRS 9 full text - IFRS webpage
• New ‘own use’ and hedging guidance for contracts referencing nature-dependent electricity - PwC - December 2024
• Renegotiating a loan? Get the accounting right - Kern Roberts, managing director, global accounting practice lead Chatham Financial