Power Purchase Agreement services

As a corporate solution to address today's climate challenges, the market for PPAs and VPPAs is evolving rapidly. Such contracts allow companies to justify a supply of renewable energy from producers, enabling a smoother pathway to energy transition and promoting the decarbonisation of activities. However, the implementation of these contracts raises several crucial questions.

Key considerations

Companies are increasingly engaging in PPAs and VPPAs due to several significant incentives driving the rapid growth of these initiatives. The main drivers include acquiring Guarantees of Origin (GO) to achieve decarbonisation goals, securing electricity rates over a substantial period (15 to 20 years), and complying with regulatory requirements while benefiting from fiscal and financial advantages offered by public policies.

However, there are complex IFRS challenges related to the valuation and accounting treatment of PPAs and VPPAs. The main challenges include:

•   Credibility of the valuation model used.

•   Unavailability of future energy prices.

•   Energy price volatility.

•   Data reconciliation for modelling purposes.

•   Own use or derivative.

•   Separation of Guarantees of Origin from the electricity purchase contract.

•   Alignment between production and consumption profiles.

•   Hedge accounting documentation and measurement of effectiveness.

How Forvis Mazars can help

At Forvis Mazars, we have proven capabilities in developing 10 to 20-year VPPAs for clients across Europe and the United States. Our team of quantitative finance analysts, treasury, energy, project finance and IFRS experts have the necessary experience and capabilities to support you in the valuation and accounting treatment of PPAs and VPPAs. With such depth of expertise available, we can help you to secure your energy projects with confidence.

Our PPA and VPPA services

Pre-Trade:

·         For companies

o   Analysis of existing and future energy consumption profiles

o   Review of existing energy supply contracts

o   Definition of energy supply policy, needs, and renewable energy objectives

o   Management of the tender process with developers

o   Analysis of accounting, tax, legal, and cash flow impacts

o   Development of a valuation model to challenge PPA/VPPA contract prices

o   Modelling of risk factors (production, electricity prices)

o   Risk management (VaR, back testing)

·         For developers

o   Development of the project’s financial model

o   Negotiation of contracts and optimisation of the project’s bankability

o   Structuring and raising debt and equity funds

Post-Trade:

·         Valuation and risk management

o    Development of valuation models for VPPA contracts

o    Periodic valuation of VPPA contracts

o    Modelling of PPA/VPPA contracts

o    Modelling of risk factors (production, electricity prices)

o    Risk management (VaR, backtesting)

·         Review of existing models

o    Review of input data used in the model

o    Review of the evaluation model and assumptions

o    Documentation of the existing model

·         Accounting / IFRS

o    Validation of IFRS accounting treatment

o    IFRS 9 effectiveness testing