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

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 long-term solar and wind contracts, aiding India’s broader decarbonization goals without compromising the financial stability of its exporters.

The amended norms are proposed to take effect on 1 April.

“Since there is no certainty in the actual production of nature-dependent electricity, NFRA has approved a carveout in accounting standards Ind As 107 and Ind As 109 for buyers of such power to address the accounting challenges faced by them,” one of the three people cited above said on the condition of anonymity. The authority will send the revised norms to the corporate affairs ministry for notification, the person added.

The decision was taken at a meeting on 14 January. Accounting profession’s self-regulator ICAI is represented in NFRA’s decision making meetings.

The amendments aim to reflect the “economic substance of renewable PPAs” and align Ind AS with IFRS, ensuring meaningful disclosures while avoiding unwarranted volatility in financial statements, ICAI president Charanjot Singh Nanda said.

The move is expected to encourage clean energy purchase deals, experts said.

“This amendment addresses practical situations arising from modern-day power purchase arrangements for renewable energy,” said Samir Malik, partner and financial reporting advisory services leader, Grant Thornton Bharat. Clean energy PPAs often involve variability due to natural conditions, but the underlying intent is not to trade in power, Malik added.

“By clarifying the application of the own-use exemption, the amendment allows companies to avoid fair-valuing such features when the purpose is genuine consumption rather than speculation. It aligns Indian standards with global practices and will help remove diversity in accounting treatments, thereby improving transparency and comparability across financial statements,” Malik said.

Positive impact on small and medium businesses

The move is expected to support small and medium enterprises, many of which are moving towards green power – to follow regulatory requirements as well as to remain competitive globally. Global norms such as European Union’s Carbon Border Adjustment Mechanism (CBAM) have forced several small businesses catering to the export markets to procure green power. Similarly, the US, Norway, Taiwan, Canada and Australia are framing norms on the similar lines, which may impact India’s exporters, especially MSMEs, which account for about 45% of India’s total exports.

Vinod Kumar, president, India SME Forum, an industry lobby group of small and medium businesses said: “The accounting reform approved by NFRA is expected to significantly benefit micro, small and medium enterprises by removing artificial profit and loss volatility linked to renewable energy power purchase agreements. By eliminating the requirement to mark such contracts to market each quarter, the change stabilizes MSMEs’ financial statements, reduces audit and compliance complexity, and improves their credit profiles with banks and lenders.”

“This will make it easier for MSMEs to enter long-term solar and wind power agreements, lower energy costs, and pursue decarbonization without balance-sheet risk, thereby enabling wider and faster adoption of clean energy across the MSME sector,” he said.

The revision will lead to greater stability in financial statements, reduced compliance and audit burden, improved access to bank credit and green finance and increased confidence to enter long-term renewable energy contracts, added Kumar. “By removing balance-sheet uncertainty, the reform enables MSMEs to pursue decarbonization without compromising financial stability,” he said. De-risking renewable energy procurement for end-users is expected to boost demand for rooftop solar, group captive projects, and open-access renewable energy, while supporting India’s national climate commitments and MSME competitiveness, added Kumar.

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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 long-term solar and wind contracts, aiding India’s broader decarbonization goals without compromising the financial stability of its exporters.

The amended norms are proposed to take effect on 1 April.

“Since there is no certainty in the actual production of nature-dependent electricity, NFRA has approved a carveout in accounting standards Ind As 107 and Ind As 109 for buyers of such power to address the accounting challenges faced by them,” one of the three people cited above said on the condition of anonymity. The authority will send the revised norms to the corporate affairs ministry for notification, the person added.

The decision was taken at a meeting on 14 January. Accounting profession’s self-regulator ICAI is represented in NFRA’s decision making meetings.

The amendments aim to reflect the “economic substance of renewable PPAs” and align Ind AS with IFRS, ensuring meaningful disclosures while avoiding unwarranted volatility in financial statements, ICAI president Charanjot Singh Nanda said.

The move is expected to encourage clean energy purchase deals, experts said.

“This amendment addresses practical situations arising from modern-day power purchase arrangements for renewable energy,” said Samir Malik, partner and financial reporting advisory services leader, Grant Thornton Bharat. Clean energy PPAs often involve variability due to natural conditions, but the underlying intent is not to trade in power, Malik added.

“By clarifying the application of the own-use exemption, the amendment allows companies to avoid fair-valuing such features when the purpose is genuine consumption rather than speculation. It aligns Indian standards with global practices and will help remove diversity in accounting treatments, thereby improving transparency and comparability across financial statements,” Malik said.

Positive impact on small and medium businesses

The move is expected to support small and medium enterprises, many of which are moving towards green power – to follow regulatory requirements as well as to remain competitive globally. Global norms such as European Union’s Carbon Border Adjustment Mechanism (CBAM) have forced several small businesses catering to the export markets to procure green power. Similarly, the US, Norway, Taiwan, Canada and Australia are framing norms on the similar lines, which may impact India’s exporters, especially MSMEs, which account for about 45% of India’s total exports.

Vinod Kumar, president, India SME Forum, an industry lobby group of small and medium businesses said: “The accounting reform approved by NFRA is expected to significantly benefit micro, small and medium enterprises by removing artificial profit and loss volatility linked to renewable energy power purchase agreements. By eliminating the requirement to mark such contracts to market each quarter, the change stabilizes MSMEs’ financial statements, reduces audit and compliance complexity, and improves their credit profiles with banks and lenders.”

“This will make it easier for MSMEs to enter long-term solar and wind power agreements, lower energy costs, and pursue decarbonization without balance-sheet risk, thereby enabling wider and faster adoption of clean energy across the MSME sector,” he said.

The revision will lead to greater stability in financial statements, reduced compliance and audit burden, improved access to bank credit and green finance and increased confidence to enter long-term renewable energy contracts, added Kumar. “By removing balance-sheet uncertainty, the reform enables MSMEs to pursue decarbonization without compromising financial stability,” he said. De-risking renewable energy procurement for end-users is expected to boost demand for rooftop solar, group captive projects, and open-access renewable energy, while supporting India’s national climate commitments and MSME competitiveness, added Kumar.

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