A new accounting rule to rescue clean energy users from profit and loss volatility

Subscribe to enjoy similar stories. India’s accounting regulators have moved to shield corporate balance sheets from the whims of the weather gods, approving a key reform that will stop renewable energy contracts distorting profit-and-loss statements.

The National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI) have addressed a long-standing grievance for industrial power consumers who were treated as traders when they sold excess green power back to the grid, three people familiar with the matter said. Given the unpredictability of green power, industrial consumers frequently find themselves with surplus energy they cannot store.

Existing rules treated Power Purchase Agreements (PPAs) in such cases as financial instruments, liable to be marked to market in their financial statements, and triggering volatility in statements given the unpredictable generation of green power. As per amendments to accounting standards Ind AS 107 and Ind AS 109, green power purchase contracts will no longer be treated as financial contracts if the buyer’s total power intake over the year exceeds the amount sold back to the grid.

The move also brings Indian standards in line with International Financial Reporting Standards (IFRS). Instead of quarterly fair-value reassessments, companies will now provide transparent disclosures in their "notes to accounts," detailing power volumes purchased and sold.

The reform is expected to provide significant relief to Micro, Small, and Medium Enterprises (MSMEs), many of whom are shifting to green power to stay competitive under the EU’s Carbon Border Adjustment Mechanism (CBAM). By removing balance-sheet risk, regulators hope to accelerate the adoption of