Power Purchase Agreements

The IASB met on 22 October 2024 to discuss the proposals set out in Exposure Draft Contracts for Renewable Electricity. The IASB discussed:

• potential refinements to the hedge accounting proposals (Agenda Paper 3A)
• the proposed disclosure requirements for contracts within the scope of the proposed amendments (Agenda Paper 3B)
• the proposed transition requirements for the proposed amendments, and their effective date (Agenda Paper 3C); and
• the due process steps to begin the process for balloting the narrow-scope amendments (Agenda Paper 3D).

Hedge accounting amendments (Agenda Paper 3A)

The IASB tentatively decided to finalise the proposed hedge accounting requirements set out in the Exposure Draft, subject to minor changes:

1. to clarify to which particular requirements in Section 6.3 of IFRS 9 Financial Instruments the proposed amendments relate;
2. to clarify that an entity would be permitted to align the amount of forecasted transactions designated as the hedged item with the variable amount of nature-dependent electricity expected to be delivered by the facility referenced in the hedging instrument;
3. to clarify that, if the cash flows of the hedging instrument are conditional on the occurrence of the hedged forecast transaction, the ‘highly probable’ assessment would not be relevant; and
4. to add qualitative examples to illustrate the application of the proposed amendments.

The IASB also tentatively decided not to add any additional guidance for the purpose of the ‘highly probable’ assessment.

All 14 IASB members agreed with these decisions.

Disclosures (Agenda Paper 3B)

The IASB tentatively decided to finalise the proposed disclosure requirements as they were set out in the Exposure Draft (including the proposals applicable to an entity applying IFRS 19 Subsidiaries without Public Accountability: Disclosures) but with minor changes:

1. to limit the scope of the disclosure requirements to contracts that would be accounted for in accordance with the proposed amendments—that is, contracts:
   1. entered into for the receipt of nature-dependent electricity that would be accounted for as executory contracts in accordance with the proposed own-use amendments; and
   2. designated in a hedging relationship as hedging instruments in accordance with the hedge accounting amendments.
2. to clarify that, for contracts described in (a)(i), an entity would be required to disclose information about their terms and conditions that expose the entity to:
   1. the variability of the contracted amount of nature-dependent electricity; and
   2. the risk of oversupply of electricity in any delivery interval.
3. to clarify that, for contracts described in (a)(ii), an entity would satisfy the proposed requirement to disclose information about the contracts’ terms and conditions by disaggregating the information required to be disclosed by paragraph 23A of IFRS 7 Financial Instruments: Disclosures.
4. to require, for unrecognised contractual commitments from contracts described in (a)(i), an entity to disclose:
   1. the aggregated expected cash flows from buying electricity under these contracts. An entity would be required to use its judgement to determine the appropriate time bands within which to aggregate the future expected cash flows.
   2. qualitative information about how it assesses whether a contract might become onerous, including the methods and assumptions it used to make this assessment.
5. to require, for contracts described in (a)(i), an entity to disclose qualitative and quantitative information about how it determines whether it remains a net-purchaser for the reporting period. The entity is required to disclose information about the cash flows for the reporting period arising from:
   1. purchases of electricity under the contracts, disaggregating information about the purchases of any unused electricity;
   2. sales of unused electricity; and
   3. purchases of electricity that offset sales of unused electricity.
6. to amend paragraph 5 of IFRS 7 to ensure that the contracts described in (a)(i) would be subject to the disclosure requirements proposed for inclusion in that Standard.
7. to require an entity to cross-refer between notes to the financial statements if it disclosed information about contracts within the scope of the proposed amendments in more than one note.

Thirteen of 14 IASB members agreed with these decisions.

Feedback on the transition proposals and the effective date (Agenda Paper 3C)

The IASB tentatively decided to set an effective date of 1 January 2026, with early application permitted from the date of initial application.

For the proposed own-use amendments, the IASB tentatively decided:

1. to continue to require retrospective application without requiring an entity to restate comparative information (as proposed in the Exposure Draft);
2. to require an entity’s assessment under the proposed own-use amendments to be made based on its facts and circumstances at the date of initial application; and
3. to permit the entity to designate, at the date of initial application, contracts at fair value through profit or loss in accordance with paragraph 2.5 of IFRS 9.

For the hedge accounting amendments, the IASB tentatively decided:

1. to continue to require an entity to apply hedge accounting requirements prospectively; and
2. to permit an entity to discontinue an existing hedging relationship on the date of initial application of the amendments, and to designate a new hedging relationship applying the amendments.

All 14 IASB members agreed with these decisions.

Due process steps (Agenda Paper 3D)

The IASB discussed the due process steps for the proposed amendments.

All 14 IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the narrow-scope amendments to IFRS 9 and IFRS 7.

Two IASB members indicated an intention to dissent from issuing the amendments.