Decommissioning wind and solar farms

When does a decommissioning obligation arise?

When the company has a present obligation from installing the farm. Most planning permits and land leases require the owner to remove the equipment and restore the land when the project ends; some laws impose the same duty. A company that has publicly committed to recycle or remove its assets may also have a constructive obligation. Installation is the past event, so the provision is recognised when the farm is built, not over its operating life. See IAS 37 provisions.

What does the provision cover?

The expected costs of dismantling and removing turbines or panels, inverters and mounting structures; removing foundations to the depth the permit requires; removing or making safe cables; demolishing the substation; and restoring the land to its required condition. Costs are estimated at the expected time of removal, using current technology and requirements, and discounted at a pre-tax rate reflecting the time value of money. Engineering studies are refreshed periodically as crane, labour and disposal costs change.

Decommissioning wind and solar farms: a solar farm example

A solar farm is built on land leased for 30 years. Removing it is expected to cost US$ 8 million at the end of the lease, in money of that time, and the company expects to sell the panels and steel for 2 million. The discount rate is 4%. The provision is 8 / 1.04³⁰ = 2.47 million, added to the cost of the farm; the expected 2 million of salvage is not deducted. In year 1 the discount unwinds by 0.10 million. At the end of year 5, with the provision at 3.00 million, the company extends the land lease by 10 years and plans to run the farm until then.

Pushing the removal date out by 10 years reduces the present value of the provision by 0.97 million, deducted from the cost of the farm under IFRIC 1, and the company also reviews the farm's useful life, which the extension may lengthen. See wind and solar asset lives.

Why is salvage value not deducted?

IAS 37 does not allow gains from the expected disposal of assets to be taken into account in measuring a provision, even if the disposal is closely linked to the event that gives rise to the provision. Expected scrap or recycling proceeds are recognised only when the assets are sold. If a third party, such as a turbine manufacturer, has agreed to take back and recycle components at its own cost, that reimbursement is a separate asset, recognised only when virtually certain.

How does repowering affect the provision?

Repowering removes the old turbines years before the original end date. Once it is planned, the timing of that part of the removal moves forward, increasing the present value of the provision, with the increase added to the asset under IFRIC 1. The new turbines create a new obligation when they are installed. If the old foundations or cables are reused, the cost and timing of removing them change too.

What is different about offshore wind?

Removing offshore foundations, cables and substations is far more expensive and depends on vessel availability and evolving seabed requirements, so estimates carry more uncertainty and are disclosed with their key assumptions. Seabed leases and regulators often require financial security, such as guarantees, which does not reduce the provision. Where transmission assets are transferred to a separate owner, as in the UK, the obligation for those assets may go with them.

Is deferred tax recognised?

Yes. Since the 2023 amendments to IAS 12, the provision and the matching asset create equal temporary differences on which a deferred tax asset, subject to recoverability, and a deferred tax liability are recognised. See decommissioning provisions in oil and gas, which works through the same mechanics in more detail, and power and utilities accounting.

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