Category: Accounting

Virtual PPA Accounting: What IFRS 9 Changes in 2026

From 2026, amended IFRS 9 lets a UK buyer hedge-account a virtual PPA against a variable volume of forecast purchases. What changed, and the limits.

If you have looked at a virtual PPA and been warned off by the accounting, the warning is a little out of date. Amendments to IFRS 9 that apply to financial years beginning on or after 1 January 2026 change how a buyer can hedge-account for one. Here is what changed, who it applies to, and what it does not fix.

Why the accounting was the problem

A virtual PPA settles in cash: you and the generator pay each other the difference between a fixed price and the market price for the project's output, and no electricity changes hands. Because it is not a contract to take delivery of power for your own use, it is generally accounted for as a derivative, carried at fair value. Without hedge accounting, every swing in forward power prices runs through profit and loss. Hedge accounting was hard to achieve because the generator's output varies with the weather, while a hedge designation usually needs a defined, highly probable forecast transaction to point at.

What the IASB changed

On 18 December 2024 the International Accounting Standards Board issued amendments to IFRS 9 and IFRS 7 for contracts referencing nature-dependent electricity, meaning electricity whose generation depends on uncontrollable natural conditions such as the weather. The scope covers financial instruments that reference such electricity, which takes in virtual PPAs. For a virtual PPA the key change is in hedge accounting:

• A buyer may designate as the hedged item a variable nominal amount of forecast electricity purchases, aligned with the variable output expected from the generator the contract references.
• Where the contract's cash flows depend on that forecast purchase happening, the purchase is presumed to be highly probable.
• Information about these contracts must be disclosed in a single note to the accounts.

Sources: IFRS Foundation, power purchase agreements project (amendments issued 18 December 2024); IASB, Contracts Referencing Nature-dependent Electricity (amendments to IFRS 9 and IFRS 7). Read 14 Oct 2026.

When it applies in the UK

The amendments were endorsed in the EU in June 2025, and the UK Endorsement Board adopted them for UK use in July 2025. They must be used for financial years beginning on or after 1 January 2026, and may be used earlier if the company discloses it. For UK subsidiaries reporting under FRS 101, the Financial Reporting Council made no amendments in its 2025/26 review. Its FRED 88 consultation explained that a qualifying entity that is not a financial institution is exempt from the new disclosures, provided equivalent disclosures are in the group's consolidated accounts.

Sources: UK Endorsement Board, adoption statement (July 2025); FRC, FRED 88 (FRS 101 annual review 2025/26); FRC, FRS 101 2025/26 cycle: outcome (21 May 2026).

What the change does not fix

Three limits are worth knowing before you sign. The hedge accounting change applies only to new hedging relationships designated on or after the date a company first applies the amendments, so it does not rescue an old designation. The IASB says the new paragraphs must not be applied by analogy to other contracts. And the economics are untouched: in the IASB's own worked example, a 25-year virtual PPA still shows hedge ineffectiveness from basis risk between two regions' prices and from structural price differences.

None of this is accounting advice; agree the treatment with your auditors before signature. For how a virtual PPA settles, what drives basis risk and who it suits, read our full guide to the virtual PPA.

Source: IASB, Contracts Referencing Nature-dependent Electricity (amendments to IFRS 9 and IFRS 7).