Power and utilities accounting: the key issues

Electricity companies range from regulated grids that earn a set return, to generators selling into volatile wholesale markets, to developers building wind and solar farms on twenty-year contracts. The energy transition has added new products, such as certificates, virtual PPAs and battery storage, that existing standards were not written for. This guide maps the key IFRS issues across the sector, explains why each matters and links to the detailed guides.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

Power and utilities accounting is shaped by long-lived assets, long-term contracts and regulation. Power purchase agreements may be leases, derivatives or own-use contracts, depending on their terms. Renewable energy certificates have no specific IFRS standard, so companies set policies. Wind and solar farms are depreciated by component over lives limited by land leases and permits, with decommissioning provided for up front under IAS 37. Regulated utilities will recognise regulatory assets and liabilities under IFRS 20 from 2029. Capacity payments for standing ready are revenue over time under IFRS 15.

At a glance

PPAs
Lease, derivative or own use
Certificates
No specific IFRS, policy choice
Asset lives
Components, land lease limits
Decommissioning
IAS 37 when installed
Rate regulation
IFRS 20 from 2029
Capacity
Revenue over time
Power and utilities accounting: the key issuesPPAs: Lease, derivative or own use; Certificates: No specific IFRS, policy choice; Asset lives: Components, land lease limits; Decommissioning: IAS 37 when installed; Rate regulation: IFRS 20 from 2029; Capacity: Revenue over time.KEY FACTS AT A GLANCEPower and utilities accounting: the key issuesPPAsLease, derivative or ownuseCertificatesNo specific IFRS, policychoiceAsset livesComponents, land leaselimitsDecommissioningIAS 37 when installedRate regulationIFRS 20 from 2029CapacityRevenue over timeTax BakersPower and utilities accounting: the key issuesPPAs: Lease, derivative or own use; Certificates: No specific IFRS, policy choice; Asset lives: Components, land lease limits; Decommissioning: IAS 37 when installed; Rate regulation: IFRS 20 from 2029; Capacity: Revenue over time.KEY FACTS AT A GLANCEPower and utilities accounting:the key issuesPPAsLease, derivative or own useCertificatesNo specific IFRS, policy choiceAsset livesComponents, land lease limitsDecommissioningIAS 37 when installedRate regulationIFRS 20 from 2029CapacityRevenue over timeTax Bakers
Key facts at a glance, as set out in this guide.

Why is power and utilities accounting different?

Power plants and networks last decades, and their economics depend on contracts and regulation more than on day-to-day sales. A generator may sell all its output for twenty years under one agreement; a network company's revenue is set by a regulator to recover its costs and a return. Prices are volatile, subsidies are common and output from wind and solar depends on the weather. Each of these features creates accounting questions that the standards answer only indirectly.

Which IFRS issues matter most in power and utilities accounting?

Key power and utilities accounting issuesKey power and utilities accounting issuesStandardWhy it mattersPPAsIFRS 16, IFRS 9Lease, derivativeor own useCertificatesNone specificPolicychoiceAsset livesIAS 16Components,land leasesDecommissioningIAS 37Provisionwhen builtRate regulationIFRS 20From2029CapacityIFRS 15Stand-readyrevenue
Six issues drive most of a power company's accounting.

How are power purchase agreements accounted for?

It depends on the terms. A physical PPA for all the output of a specific plant can contain a lease if the buyer directs how the plant is used, for example because it designed it. A physical PPA that is not a lease is an own-use executory contract if it meets the own-use conditions, otherwise a derivative. A virtual PPA, settled in cash against a market price, is a derivative. Amendments to IFRS 9 effective in 2026 make the own-use test and hedge accounting work better for wind and solar contracts. See power purchase agreements and commodity hedging and own use.

How are renewable energy certificates treated?

Certificates that prove a megawatt-hour came from a renewable source can be sold separately from the power. IFRS has no specific standard for them, and the IASB deferred a project on pollutant pricing mechanisms in 2025, so generators and buyers choose policies under IAS 2, IAS 38 and IAS 20. See renewable energy certificates.

How are wind and solar assets depreciated?

By component: turbines, blades and gearboxes, solar panels and inverters, foundations and grid connections have different lives. The useful life of the whole farm is often limited by the land lease, the planning permit or the grid connection agreement, and repowering plans can shorten it. See wind and solar asset lives.

When is decommissioning provided for?

When the farm is built, if the company is obliged by its permit, land lease or law to remove it. The present value of the removal cost is added to the asset, and expected scrap or recycling proceeds are not deducted. See decommissioning wind and solar farms.

How is rate regulation accounted for?

Regulated utilities often recover today's costs through tomorrow's tariffs. IFRS 20, issued in May 2026 and effective from 2029, requires regulatory assets and liabilities for those timing differences. Until then, only first-time adopters can keep previous practice under IFRS 14. See regulatory deferral accounts.

How are capacity payments recognised?

Generators and storage operators paid to be available, through capacity markets or capacity charges in PPAs, have a stand-ready obligation and recognise the revenue over the availability period, adjusting for expected penalties. See capacity payments.

What other issues arise?

Utilities bill customers after they use energy, so they estimate unbilled revenue at each period end. Feed-in tariffs and other subsidies raise questions about whether they are revenue or government grants. Grid connection contributions, emissions allowances and battery storage projects each have their own accounting puzzles, and the own-use exemption decides which energy contracts are derivatives. Hedging fuel and power prices uses IFRS 9 hedge accounting; see commodity price hedging.

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Questions people ask

What are the main accounting issues for power companies?

Power purchase agreements, own use and hedging, renewable energy certificates, asset lives and decommissioning of wind and solar farms, rate regulation and capacity payments.

Is a power purchase agreement a lease?

It can be, if it gives the buyer all the output of a specific plant and the right to direct its use, for example because the buyer designed it.

Is there an IFRS standard for renewable energy certificates?

No. Companies set policies using IAS 2, IAS 38 and IAS 20; the IASB deferred its pollutant pricing project in 2025.

When does IFRS 20 apply?

From annual periods beginning on or after 1 January 2029, with early application permitted.

Sources

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

  1. IFRS Foundation: IFRS 16 Leases
  2. IFRS Foundation: IFRS 9 Financial Instruments
  3. IFRS Foundation: Rate-regulated activities project, IFRS 20 Regulatory Assets and Regulatory Liabilities

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 purchase agreementsPower and renewablesRenewable energy certificatesPower and renewablesRegulatory deferral accounts: IFRS 14 and the new IFRS 20

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