Feed-in tariffs and subsidies

Many of the world's wind and solar farms were built on the promise of guaranteed prices. The schemes have changed over time, from fixed tariffs paid by utilities, to premiums on top of market prices, to two-way contracts for difference awarded in auctions, but the accounting question stays the same: is the support part of the price of electricity, or government assistance? This guide works through the main schemes, the presentation choices, investment grants and tax credits.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. 4 minute read.

Short answer

Feed-in tariffs and similar subsidies support renewable generators in several forms, and each is accounted for differently. A fixed tariff paid by a utility that buys the power is simply the price of electricity sold, revenue under IFRS 15. A premium or top-up paid by a government body on top of the market price, including payments under a contract for difference, is treated by some generators as part of revenue and by others as a government grant under IAS 20; because the payment depends on the generator's own output, it is usually not a derivative. Grants for building a plant reduce its cost or are deferred, and tax credits need their own analysis. In this guide's example, a solar farm selling 10,000 MWh at a market price of $60 with a guaranteed $90 receives US$ 0.6 million from the market and a 0.3 million top-up.

At a glance

Fixed tariff paid by a buyer
Revenue, IFRS 15
Premium or top-up
Revenue or IAS 20 grant, by policy
Contract for difference
Often not a derivative
Capital grants
Reduce cost or defer
Tax credits
Analyse each scheme
Certificates
Separate asset or revenue
Feed-in tariffs and subsidiesFixed tariff paid by a buyer: Revenue, IFRS 15; Premium or top-up: Revenue or IAS 20 grant, by policy; Contract for difference: Often not a derivative; Capital grants: Reduce cost or defer; Tax credits: Analyse each scheme; Certificates: Separate asset or revenue.KEY FACTS AT A GLANCEFeed-in tariffs and subsidiesFixed tariff paid by a buyerRevenue, IFRS 15Premium or top-upRevenue or IAS 20 grant,by policyContract for differenceOften not a derivativeCapital grantsReduce cost or deferTax creditsAnalyse each schemeCertificatesSeparate asset or revenueTax BakersFeed-in tariffs and subsidiesFixed tariff paid by a buyer: Revenue, IFRS 15; Premium or top-up: Revenue or IAS 20 grant, by policy; Contract for difference: Often not a derivative; Capital grants: Reduce cost or defer; Tax credits: Analyse each scheme; Certificates: Separate asset or revenue.KEY FACTS AT A GLANCEFeed-in tariffs and subsidiesFixed tariff paid by a buyerRevenue, IFRS 15Premium or top-upRevenue or IAS 20 grant, by policyContract for differenceOften not a derivativeCapital grantsReduce cost or deferTax creditsAnalyse each schemeCertificatesSeparate asset or revenueTax Bakers
Key facts at a glance, as set out in this guide.

What forms do feed-in tariffs and subsidies take?

  • Fixed feed-in tariff: a utility or grid company must buy the generator's output at a fixed price per kWh for a long period, often above the market price.
  • Feed-in premium: the generator sells its power in the market and receives a fixed premium per kWh from a government body or fund.
  • Contract for difference: the generator sells in the market and a government-owned counterparty pays it the difference between a strike price and a market reference price, or receives the difference when the market price is higher. Great Britain's renewable contracts for difference work this way.
  • Capital grants and tax credits: support towards building the plant, such as investment grants or tax credits based on investment or production.

How is a fixed feed-in tariff accounted for?

If the party paying the tariff takes the electricity, it is the generator's customer and the tariff is the price. Revenue is recognised under IFRS 15 as the power is delivered, at the tariff rate, even if that rate is far above the market. Nothing is separated as a subsidy, because the buyer, not the government, pays for the goods it receives.

Feed-in tariffs: a market sale with a top-up

A solar farm generates 10,000 MWh and sells it in the wholesale market at an average of $60. Under its support scheme, a government-owned body pays it the difference up to a guaranteed $90 per MWh.

How each scheme is usually accounted forHow each scheme is usually accounted forTOPICUsual treatmentNoteFixed tariff from buyerRevenueNot a grantPremium from governmentRevenue or grantPolicy choiceContract for differenceNot a derivativeIf on own outputCapital grantDeduct or deferIAS 20
Who pays, and for what, decides the treatment.
US$ millionTop-up presented as revenueTop-up presented as a grant
Revenue from electricity sales0.60.6
Top-up0.3, within revenue0.3, as other income
Total0.90.9

Profit is the same; revenue and margins differ. Those presenting the top-up as revenue argue it completes the price for the electricity sold and is earned only by selling it. Those presenting it as a grant point out that the government body is not buying anything, so it is not a customer, and apply IAS 20, recognising the grant as the related output is generated. The policy should be disclosed and applied consistently. See government grants.

Is a contract for difference a derivative?

It looks like one, a payment based on the difference between a strike price and a market price, but IFRS 9 excludes contracts whose underlying includes a non-financial variable specific to a party to the contract. The payment depends on the electricity the generator actually produces, which is specific to it, so many generators conclude a CfD tied to their output is not a derivative. Where a CfD is settled on a notional volume not linked to the generator's output, it is more likely to be a derivative. Two-way schemes mean the generator pays back when prices are high, which is recognised in the same line as the receipts.

How are capital grants and tax credits treated?

Grants towards building a plant are recognised when there is reasonable assurance the conditions will be met and the grant received, and are either deducted from the asset's cost or held as deferred income, then reach profit over the asset's life. Tax credits are harder: credits that are part of the income tax computation fall under IAS 12, while credits paid whatever the company's tax position, or that can be sold, may be government grants under IAS 20. Transferable US clean energy credits introduced in 2022 are one example where this analysis matters. See IAS 12 income taxes.

What about green certificates?

Some schemes support generators through certificates rather than tariffs, and many generators receive both. Certificates are accounted for separately, under the company's policy for them. See renewable energy certificates and power and utilities accounting.

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Questions people ask

Is a feed-in tariff revenue or a government grant?

A fixed tariff paid by the buyer of the electricity is revenue under IFRS 15; a premium or top-up paid by a government body is treated as revenue by some generators and as an IAS 20 grant by others.

Is a renewable contract for difference a derivative?

Often not, if payments depend on the generator's own output, because that is a non-financial variable specific to a party to the contract.

How are grants for building a renewable plant accounted for?

Under IAS 20, deducted from the asset's cost or held as deferred income, reaching profit over the asset's life.

Are clean energy tax credits income tax or grants?

It depends on the scheme: credits within the income tax computation fall under IAS 12, while refundable or transferable credits may be grants.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
  2. IFRS Foundation: IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
  3. IFRS Foundation: IFRS 9 Financial Instruments

Rules and fees change. If you are reading this long after October 8, 2026, confirm the figures with the source before you rely on them.

Power and renewablesPower and utilities accounting: the key issuesPower and renewablesRenewable energy certificatesPower and renewablesPower purchase agreements

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This guide is general information. It is not tax or legal advice for your situation.