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Financial reporting implications of rising power demand
Power demand in the U.S. is rising rapidly for the first time in decades, driven by the explosive growth of AI data centers, the electrification of operations and transportation, and the resurgence of domestic manufacturing.
At recent forums like CERAWeek and SEMICON West, executives have warned that surging electricity demand is outpacing grid capacity. This drumbeat from the C-suite—which spans sectors—underscores that securing sufficient, reliable power has become a strategic priority for U.S. companies.
In response, companies across industries are diversifying their energy sourcing strategies. Finance leaders must work in lockstep with other C-suite and functional leaders, as these changes are designed and implemented, to help navigate the financial reporting implications and to have a clear view on impacts to financial statements, key performance metrics (KPIs) and financial forecasts.
Why power consumption matters for the finance function
Companies are often turning to new on- and off-site power options such as renewables, long-duration battery power storage, geothermal, natural gas turbines, or even nuclear, to increase their energy reliability and to diversify their energy source mix. These solutions often involve complicated contractual arrangements and impact many stakeholders—both internal and external.
For example, complex arrangements such as power purchase agreements (PPAs) or Energy-as-a-Service (EaaS) arrangements can pose a risk of unanticipated financial reporting consequences in a company’s financial statements or other investor relations communications. An accounting analysis should be completed well ahead of executing any contracts to understand the impacts and tradeoffs inherent in any proposed energy solution. Ultimately, the accounting treatment hinges on the form of the initiative or project, the nature of the expenditures, and the terms of the contracts.
What are the financial reporting implications of energy-related investments?
When assessing the financial reporting impacts of these types of large-scale operational changes, the accounting determinations can have important impacts on key financial metrics—many of which differ between U.S. Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS). Often, the contracts or investments are long-term in nature and could have a material financial impact on the company1. Below are a few types of common initiatives and financial reporting considerations for finance leaders:
What should CFOs do?
As energy optimization strategies and sustainability-related reporting become more central to business planning, finance leaders across all industries should stay ahead of the accounting and reporting impacts before any new arrangements are completed. This starts with assessing how these efforts could affect financial statements, KPIs, and investor messaging.
Relevant questions to keep in mind:
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Finance leaders should work closely with operational teams to align financial reporting with what’s happening across the business.
Potential Financial Reporting Impacts
- Net Income
- EBITDA
- Balance Sheet
- Statement of Cash Flows
Net Income
Power Purchase Arrangements (PPAs)
- Impact to expense classification and timing
- Potential mark-to-market adjustments
Virtual Power Purchase Arrangements (VPPAs)
- If RECs included, impact is determined by recognition model
- Potential mark-to-market adjustments, if derivative accounting applies
Energy-as-a-Service (EaaS)
- Impact to expense classification and timing
On-Site Infrastructure Investments
- Potential depreciation or interest changes
EBITDA
Power Purchase Arrangements (PPAs)
- Adjusted for lease presentation
- Adjusted for mark-to-market accounting
Virtual Power Purchase Arrangements (VPPAs)
- May exclude impact of RECs accounted for as intangible assets
- Adjusted for mark-to-market accounting, if applicable
Energy-as-a-Service (EaaS)
- Adjusted for lease presentation
- Impact to expense classification and timing
On-Site Infrastructure Investments
- Adjusted for lease presentation
- Excludes any non-cash expenses
Balance Sheet
Power Purchase Arrangements (PPAs)
- Recognize lease related obligations
- Record derivative(s) at fair value
Virtual Power Purchase Arrangements (VPPAs)
- If RECs included, may result in intangible assets or inventory
- Record derivative(s), if applicable
Energy-as-a-Service (EaaS)
- May reflect lease or debt obligations
- Include or exclude investee assets and liabilities
On-Site Infrastructure Investments
- May reflect lease or debt obligations
- Capitalization of PPE-related expenses
Statement of Cash Flows
Power Purchase Arrangements (PPAs)
- Impact to classifications
- Potentially significant disconnect between expense and cash flows timing
Virtual Power Purchase Arrangements (VPPAs)
- Impact to classification
Energy-as-a-Service (EaaS)
- Impact to classifications
On-Site Infrastructure Investments
- Impact to classifications
The bottom line
Power demand is increasing across industries, which poses new accounting and financial reporting challenges for finance leaders. Oftentimes, complex arrangements negotiated in silos result in surprising financial reporting results. The need to work cross functionally has never been greater to ensure that the various stakeholders’ needs don’t conflict with the financial reporting objectives of the CFO.
PwC helps organizations of all sizes and industries navigate the accounting and financial reporting challenges arising from strategic transformations. Pulling from deep subject matter and industry expertise, our specialists bring insights to our clients on a broad range of accounting and financial reporting matters at the intersection of complex accounting, financial reporting, and business transformation.
Our teams of professionals across our broader spectrum of PwC services possess extensive experience with analyzing the financial, tax, sustainability, operational and technological impacts of large-scale operational investments and strategies.
1Illustrative financial reporting considerations include several accounting topics relevant to financial statements prepared under both United States Generally Accepted Accounting Principles (“US GAAP”) and International Financial Reporting Standards (“IFRS”). These topics include, but are not limited to, ASC 810/IFRS 10 (Consolidation), ASC 842/IFRS 16 (Leases), ASC 470 & 835 / IAS 23 & IFRS 9 (Debt) and ASC 815/IFRS 9 (Derivatives and Hedging). In certain circumstances, the resulting financial statement impacts may differ depending on the accounting standard applied.
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