The mark-to-market of commodity supply contracts, such as power purchase agreements and related derivatives, can create significant volatility in profit and loss. But are these gains and losses meaningful, and should you remove them from performance measures as many companies do in their non-GAAP reporting?
There are 4 methods of accounting for power purchase agreements and, confusingly, you could find all of them applied by one company. We explain how each method works, when fair value gains and losses arise, the implications for your analysis, and how all this will be affected by a recent change to IFRS 9.
Continue reading “Commodity price risks: Volatility, hedging and ‘own-use’”