Whilst historically a topic of interest to energy generators (Generators) and electricity retailers (Retailers), power purchase arrangements (PPAs) are more and more commonly being entered into by large scale energy users, including Corporates as part of their ESG strategy.
Corporates typically enter into PPAs with generators to obtain Large-scale Generation Certificates (LGCs) from the generator which will be used to offset emissions associated with the organisation’s power consumed and to assist in meeting its sustainability targets.
Accounting for PPAs can be complex. Depending on the facts and circumstances, PPAs may be executory (procurement) contracts, leases or derivative financial instruments.
Collaboration between the procurement, sustainability and finance functions to understand the arrangements entered into will be critical to determine the impact on the organisation.
In this Reporting Update, we highlight some of the key accounting considerations for PPAs.
If you have any questions, please reach out to your usual KPMG contact.
