As the global energy transition gains momentum, many Canadian organizations are entering into renewable power purchase agreements (PPAs) to align with environmental goals and stakeholder expectations. These agreements let purchasers support the green energy market while offering power producers a reliable revenue stream.
PPAs can be complex, notably when it comes to accounting and valuation considerations. At PwC Canada, we help you manage the complexities of renewable PPAs, working with you to make the most of the opportunities and meet regulatory requirements.
Navigating an evolving landscape for power purchase agreements
Accounting and valuation considerations for PPAs are constantly evolving. Unlike conventional energy sources, the timing and volume of renewable electricity production is variable due to its dependency on nature. This inherent unpredictability poses challenges in accounting and valuation of these contracts.
Examples of sustainable-linked products that require careful consideration of accounting and/or valuation issues include:
power purchase agreements;
virtual power purchase agreements; and
- mixed power purchase agreements, through which an entity buys physical renewable energy certificates that it can resell, retire or cancel and financially settles.
In general, a power purchase agreement should be evaluated under applicable International Financial Reporting Standards (IFRS) for the following:
- consolidation/associate/joint arrangement/service concession arrangement considerations;
- leasing considerations;
- own-use considerations;
- definition of a contract in International Accounting Standard 32;
- IFRS 9 considerations related to host contract determination and identification of embedded derivatives; and
- hedge accounting considerations.
The power purchase agreement is usually beyond the traded forward curve and requires unobservable inputs in the fair valuation model. As a result, the valuation for these contracts requires organizations to account for a range of considerations, such as:
IFRS 13 calibration;
IFRS 13 inception fair value measurement; and
facility-specific attributes.
How we can help
Our professionals have the insights and expertise to help Canadian companies work through these and other valuation and accounting considerations involved in renewable power purchase agreements. To discuss how you can make the most of the opportunities while navigating the complexities, reach out to us any time.
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Partner, Banking & Capital Markets Assurance Leader, Financial Risk Management Leader, PwC Canada
