Power Purchase Agreements: upcoming amendments to IFRS 9

At its December 2023 meeting, the IASB confirmed that it would be undertaking a project to amend IFRS 9 – Financial Instruments, to clarify the accounting treatment of Power Purchase Agreements (PPAs).

Keywords: Mazars, Thailand, IASB, IFRS, PPA, IFRS 9 


The Board reached this decision after considering the findings of the research project that the IASB staff has been working on since July 2023.  

The research project confirmed the increasingly widespread use of PPAs across many jurisdictions, as well as significant diversity in practice in applying the requirements of IFRS 9 to these contracts.  
The research also made recommendations on the approach to be taken to the amendments. They are likely to focus on two areas: the scope exclusion of own-use contracts from the requirements set out in IFRS 9 for contracts to buy or sell a non-financial item; and the application of hedge accounting requirements to PPAs.  

As regards the scope exclusion of own-use contracts, the amendments could take the form of additional application guidance to clarify how to assess the expected usage when the non-financial item purchased has certain characteristics that are specific to the electricity market (lack of control over the timing and volumes of production or delivery of the item; relatively high degree of certainty as to the usage or sales of electricity; and a market structure that requires any unused power to be put back into the network at the current market rate). These clarifications would mean that some physical PPAs could be classified as ‘own-use’.  

As regards hedge accounting, the amendments could take the form of additional requirements on how to assess whether a future transaction is highly probable, when the non-financial item purchased has the specific characteristics described above. These clarifications could also permit virtual PPAs to be designated as hedging instruments in cash flow hedging relationships.  

The next stage of the project will be the publication of an exposure draft, which is scheduled for the second quarter of 2024.