In this Q&A, John Powers addresses the primary accounting considerations that commercial, industrial, and institutional (C&I) energy buyers face regarding power purchase agreements (PPAs).
What accounting standards regulate global PPAs?
Public companies headquartered in the United States must abide by U.S. Generally Accepted Accounting Principles (GAAP). Entities with international headquarters are subject to the International Financial Reporting Standards or IFRS framework.
How do we account for a PPA under either GAAP or IFRS standards?
Certain deal structures or terms will trigger different types of accounting considerations under GAAP or IFRS. As PPA deals have characteristics similar to financial swaps and leases, it is important to explore – early on – whether or not they will prompt mark-to-market accounting, lease accounting, or consolidation. The most common concern is that a deal will be considered a derivative, and therefore trigger mark-to-market accounting.
Is mark-to-market accounting necessary, particularly in regards to financial (virtual) PPAs?
No. In our experience, there have been few cases where an entity has chosen – or needed – to mark the contract to market. Under GAAP, financial PPAs rarely fulfill all of the conditions necessary to qualify as a derivative. We have never seen a corporate PPA, under this standard, with a contract that has been marked-to-market.
Financial PPAs under IFRS usually do meet the criteria to qualify as a derivative; however, IFRS also offers other options that can avoid needing to mark the contract to market. Part of our role at Schneider Electric is to help clients navigate these options. The industry is full of deals that do not require mark-to-market accounting.
At what point in the PPA process should our accounting team get involved?
Immediately. Your accounting team will have specific constraints that must be considered before you go to market. It is in your best interest to engage them right off the bat so that you can efficiently structure deal requests based off of your organization’s financial parameters and accounting considerations.
Could you give us a few examples of early decisions that are influenced by accounting parameters?
Accounting feedback will determine where you can do a project and what types of contracts you can engage in. For instance, can your organization do a project in a region where you don’t have load? Are you able to ask for a minimum production guarantee from the developer? Should you do a fixed-volume contract, or do you need to do an as-generated contract? Each outcome will be affected by your accounting constraints and define what type of deal structure will be the best fit for your company.
How can Schneider Electric help?
Our PPA team has over 60 years of combined experience in strategic renewable energy acquisition and established relationships with subject-matter experts at the Big 4 accounting and auditing firms. We have seen countless PPA deals structured, and we offer our deep industry knowledge on how other C&I buyers have successfully satisfied their accounting requirements. Our process empowers your organization with expertise to choose the best deal structures and make well-informed accounting decisions.
Get in touch with our team of experts today to talk about what your company stands to gain from signing a renewable power purchase agreement.
Start Your Sustainable Journey
Discover the evolving landscape of renewable energy in the Asia-Pacific with Schneider Electric’s 'Renewable Energy APAC 2024 report.
Download Now
Uncover the latest insights and trends in the European renewable landscape with our comprehensive report for 2024.
Download Now
Ardagh Glass Packaging -Europe Announces a Virtual Power Purchase Agreement (VPPA), one of the first to be signed in Bulgaria, making progress towards its 2030 renewable electricity targets.
Read Article
Join us in a podcast discussing the impact of the US Inflation Reduction Act (IRA) on federal tax credits for renewable energy and clean transportation.
Listen to podcast
Explore diverse renewable energy options, activate partnerships, and drive meaningful impacts for the environment, communities, and the economy.
Download Now
Transforming the solar sector, discover how this nonprofit became a dynamic organization bridging the gap between large-scale solar developments and the communities they serve.
Read Article
Tax Credit Investment FAQs, Part 3 of 3" />
In May 2024, Schneider Electric’s Tax Credit Investment team hosted a “Tax Credit Transferability & Corporate Buyers” webinar attended by more than 250 commercial and industrial organizations. The fol
Read Article
Download this guide to explore a variety of renewable procurement options available, and tips for making a business case for your organization.
Download Now
Tax Credit Investment FAQs, Part 2 of 3" />
Part 2 of our Q&A that came up during the presentation of our recent webinar on tax credit transferability
Read Article
WEBINAR: Hear from our Renewable Energy and Carbon Advisory experts as they delve into PPA opportunities and other renewable energy mechanisms in select emerging markets.
ACCESS NOW
Texas-based solar project demonstrates the company’s strategic approach to support the build-out of clean, renewable energy and economic development
Read Article
Tax Credit Investment FAQs, Part 1 of 3" />
Our recent webinar on tax credit transferability sparked this blog series answering the many great questions that came up during the presentation.
Read Article
Discover driving forces behind global clean energy advancements with our blog discussing policy initiatives, grid modernization, and innovative solutions in the clean energy market.
Read Article
Saputo signs 15-year VPPA with Capital Power, advised by Schneider Electric, advancing its 2025 climate goals.
Read Article
This brief explores topics in renewable energy across the globe and complements our recurring regional market reports.
