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Entities are increasingly entering into power purchase agreements (PPAs) for renewable electricity to meet sustainability commitments. However, the unpredictable nature of renewable energy production results in no direct link between the seller's production and buyer's needs at the time of production. This poses challenges for entities applying the 'own-use' exception in IFRS 9 and hedge accounting to such PPAs. The IASB sought to address these challenges in this ED, as well as to require entities to disclose effects of such PPAs on their financial performance.
We are generally supportive of the ED's proposals and have highlighted areas for further clarification to enhance scope and applicability of the requirements. We shared concerns about:
- the commercial sensitivity of the required disclosures;
- the unduly burdensome requirement to disclose total electricity purchases;
- varying interpretations of the term 'average market price'; and
- additional costs to update financial reporting systems to capture the required non-financial information.
Read more in our comment letter.