Renewable energy certificates

For many corporate buyers, the certificate is the point of a renewable power deal: it is what allows them to claim their electricity is green. For generators, certificates can be a valuable second revenue stream. Yet IFRS says nothing specific about them, so practice varies. This guide sets out the common policies for generators, how bundled sales are split, and how voluntary buyers and suppliers with renewable obligations account for the certificates they buy and surrender.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 4 minute read.

Short answer

Renewable energy certificates, such as US RECs, UK REGOs and ROCs and European guarantees of origin, are issued for each megawatt-hour of renewable electricity generated and can be sold separately from the power. IFRS has no specific standard for them, and the IASB deferred its project on pollutant pricing mechanisms in 2025, so companies choose policies. Generators commonly treat certificates as inventory at cost, often nil, as a by-product, or as a government grant at fair value when issued free by the state. Sold together with power, they are usually a separate performance obligation under IFRS 15. In this guide's example, a bundled price of US$ 55 a megawatt-hour is split into 47.41 for the power and 7.59 for the certificate.

At a glance

Specific IFRS
None; IASB project deferred
Generator options
Inventory, by-product or grant
Bundled sale
Usually a separate obligation
Revenue
When the certificate is transferred
Obligated supplier
Liability as it supplies power
Voluntary buyer
Asset until retired, then expense
Renewable energy certificatesSpecific IFRS: None; IASB project deferred; Generator options: Inventory, by-product or grant; Bundled sale: Usually a separate obligation; Revenue: When the certificate is transferred; Obligated supplier: Liability as it supplies power; Voluntary buyer: Asset until retired, then expense.KEY FACTS AT A GLANCERenewable energy certificatesSpecific IFRSNone; IASB projectdeferredGenerator optionsInventory, by-product orgrantBundled saleUsually a separateobligationRevenueWhen the certificate istransferredObligated supplierLiability as it suppliespowerVoluntary buyerAsset until retired, thenexpenseTax BakersRenewable energy certificatesSpecific IFRS: None; IASB project deferred; Generator options: Inventory, by-product or grant; Bundled sale: Usually a separate obligation; Revenue: When the certificate is transferred; Obligated supplier: Liability as it supplies power; Voluntary buyer: Asset until retired, then expense.KEY FACTS AT A GLANCERenewable energy certificatesSpecific IFRSNone; IASB project deferredGenerator optionsInventory, by-product or grantBundled saleUsually a separate obligationRevenueWhen the certificate is transferredObligated supplierLiability as it supplies powerVoluntary buyerAsset until retired, then expenseTax Bakers
Key facts at a glance, as set out in this guide.

What are renewable energy certificates?

Tradable instruments, usually electronic, that certify one megawatt-hour of electricity was generated from a renewable source. In some schemes, such as renewable obligations, suppliers must surrender a quota of certificates or pay a penalty, which gives them a market value; in others, such as guarantees of origin, they mainly support voluntary claims by consumers. They are not financial instruments, because they are not contracts to receive cash, and they are not physical goods.

How does a generator account for certificates it receives?

  • Inventory at cost: the certificates are held for sale in the ordinary course of business. They have little or no separately identifiable cost, so they are recognised at nil or a small allocated cost, and the value appears as revenue when they are sold.
  • By-product at net realisable value: the certificates are a by-product of generating power, measured at net realisable value and deducted from the cost of the main product, as IAS 2 allows for immaterial by-products.
  • Government grant: certificates issued free by a government body can be recognised at fair value under IAS 20, with matching grant income or deferred income, then held as inventory or an intangible asset.

The first is the most common for generators that sell certificates regularly. Whatever the policy, it should be applied consistently and disclosed. See IAS 2 inventories.

Renewable energy certificates in a bundled PPA

A wind farm sells power and certificates together to a corporate buyer for US$ 55 a megawatt-hour. Power alone sells for 50 a megawatt-hour in the market and certificates for 8 each. The farm generates 100,000 megawatt-hours in the year; the certificates for the last quarter are issued by the registry only after the year end.

Splitting a bundled price of $55 a MWh (US$)Splitting a bundled price of $55 a MWh (US$)55.00Bundledprice-7.59Allocated tocertificate47.41Allocated toelectricity
Certificates take their share of the price when they are transferred.
Performance obligationStand-alone priceAllocated price per MWhRevenue when
Electricity50.0047.41Power is delivered
Certificate8.007.59Certificate is transferred to the buyer
Total58.0055.00

The certificates are distinct from the power: they can be traded separately and the buyer benefits from them on their own. So part of the price is allocated to them and recognised when they are transferred, which can be weeks after the power. Revenue for last quarter's certificates, 0.19 million on a quarter's output, is deferred to the next year as a contract liability, if the buyer has already paid. See allocating the transaction price.

How do suppliers with renewable obligations account?

A supplier required to surrender certificates in proportion to the electricity it sells recognises a liability as it supplies power, because supplying is the obligating event. A common approach measures the liability at the carrying amount of certificates already held for the obligation and at the market price, or the buy-out price if lower, for any shortfall. Certificates bought to settle the obligation are held as inventory or intangible assets until surrendered. Penalties for not surrendering are part of the liability.

How do voluntary buyers account for certificates?

A company buying certificates to support its own renewable claims holds them as an asset, usually an intangible asset or a prepayment, until it retires them against its consumption, then expenses them. Certificates received as part of a PPA are recognised at the amount allocated to them, if the PPA is not a derivative. Companies that buy and sell certificates for profit may hold them as inventory or, for broker-traders, at fair value less costs to sell. See power purchase agreements, feed-in tariffs and subsidies and emissions allowances.

Will the IASB issue guidance?

The IASB researched pollutant pricing mechanisms, covering emissions allowances and similar schemes, but in January 2025 it deferred the decision on adding a project to its work plan until its next agenda consultation. Until then, policy choices remain, so comparability depends on clear disclosure. US GAAP has moved further: ASU 2026-02, which creates Topic 818 on environmental credits, applies to public companies from fiscal years beginning after 15 December 2027. Under it, credits within its scope held to settle obligations or to sell are assets at cost, credits bought for voluntary use are expensed, and obligations are measured at the carrying amount of credits held plus the fair value of any shortfall. See power and utilities accounting.

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Questions people ask

Is there an IFRS standard for renewable energy certificates?

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

How does a generator usually account for certificates?

Most often as inventory at cost, which is nil or small, with revenue when the certificates are sold; some use by-product or government grant approaches.

Are certificates sold with power a separate performance obligation?

Usually yes, because they are distinct; part of the price is allocated to them and recognised when they are transferred.

How does a supplier with a renewable obligation account?

It recognises a liability as it supplies electricity, measured at the carrying amount of certificates held plus the market price of any shortfall.

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 2 Inventories
  3. IFRS Foundation: IAS 38 Intangible Assets
  4. IFRS Foundation: Pollutant pricing mechanisms project
  5. KPMG: FASB issues ASU on environmental credits and obligations (2026)

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 renewablesPower and utilities accounting: the key issuesIFRS 15Allocating the transaction price using stand-alone selling prices

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