IASB concluded redeliberations on the proposed amendments to IFRS 9 and 7 on contracts for renewable electricity (PPAs and VPPAs)

The October discussions focused on: 

• hedge accounting; 
• disclosures in the notes; and 
• the transition requirements for the amendments. 

Hedge accounting

The IASB tentatively decided: 

• to clarify to which particular requirements in the section on “Hedged items” (IFRS 9.6.3) the proposed amendments relate; 
• to specify that an entity is permitted to designate as the hedged item a variable amount of expected purchases or sales that is equal to the amount of nature-dependent electricity produced by the facility referenced in the hedging instrument; 
• to specify that the ‘highly probable’ assessment is not relevant if the cash flows of the hedging instrument are conditional on the occurrence of the hedged transaction (the IASB decided not to issue any additional guidance on the definition of ‘highly probable’, and the staff noted that the guidance on IAS 39 remained relevant, even though the examples were not carried forward to IFRS 9); and 
• to add qualitative examples to illustrate application of the amendments. 

General disclosures

The IASB tentatively decided: 

• to limit the scope of the amendments to own-use PPAs and to VPPAs that are designated in a hedging relationship in accordance with the amendments; 
• for own-use PPAs, to require entities to specify the terms and conditions that expose the entity to the risk of intermittency (contractual variability depending on the amount of electricity produced by the nature-dependent source) and volume risk (the risk of oversupply of electricity); 
• for VPPAs documented in hedging relationships, to require entities to present separately the disclosures required by paragraph 23A of IFRS 7, i.e. the terms and conditions of the contracts and how they affect the future cash flows of the entity; 
• for own-use PPAs, to require entities to present:  
  • the expected cash flows from buying electricity, aggregated into appropriate time bands; 
  • qualitative disclosures on the entity’s management of the risk that a contract will become onerous, including the methods and assumptions used; 
• for own-use PPAs, to require entities to present qualitative and quantitative information on how the entity determines whether it remains a net purchaser for the reporting period, specifically information about cash flows arising from: 
  • total electricity purchases; 
  • the unused portion of these purchases; 
  • sales of unused electricity; and 
  • subsequent purchases of electricity that offset sales of unused electricity; 
• to amend paragraph 5 of IFRS 7 to include PPA contracts that are classified as own-use under the new amendments; 
• to require cross-references between notes to the financial statements if information about contracts within the scope of the proposed amendments is presented in several place in the notes. 

Transition requirements

The IASB tentatively decided: 

• to set the effective date of the amendments at 1 January 2026, with early application permitted; 
• for the own-use amendments: 
  • to confirm that the requirements should be applied retrospectively, without restatement of comparative information;
  • to require the assessment to be carried out based on the facts and circumstances at the date of initial application of the amendments (not the date when the contract was signed);
  • to permit an entity to designate own-use contracts at fair value through profit or loss at the date of initial application (in accordance with paragraph 2.5 of IFRS 9); 
• for the hedge accounting amendments: 
  • to confirm that the requirements should be applied prospectively; 
  • to permit an entity to discontinue an existing hedging relationship and designate a new hedging relationship applying the amendments. 
• The IASB plans to publish the final amendments by end-2024. They are not likely to be adopted by the European Union until 2025.