IFRS IC agenda decision: accounting for a battery offtake arrangement

In a gross pool electricity market, transactions must be carried out between a single registered participant and the market operator. In this situation, transactions relating to the offtake arrangement take place as follows: 

• the electricity retailer pays the owner a fixed amount for the right to use the battery, calculated based on the battery’s capacity and the length of the contract, rather than on how the battery is actually used; 
• the owner operates the battery in line with the retailer’s instructions, buying and selling electricity on the market at the spot price; 
• all the cash flows from these operations are transferred to (or received from) the electricity retailer; 
• the two parties settle transactions periodically, net in cash. 

In this context, the IFRS IC noted that: 

• the economic benefits from use of the battery are derived from its storage capacity. The battery is used to store and release electricity – not to produce it; 
• the offtake arrangement provides the electricity retailer with the economic benefits derived from storage, as it has the exclusive right: 
  • to use the full capacity of the batter throughout the period of use; and 
  • to tell the battery owner whether, when and how much to charge or discharge the battery. 

The IFRS IC concluded that the electricity retailer has the right to obtain substantially all of the economic benefits from use of the battery throughout the period of use, in accordance with paragraph B9(a) of IFRS 16. 

The Interpretations Committee stated it had not analysed whether the electricity retailer had the right to direct the use of the asset, as required by paragraph B9(b) of IFRS 16, as this was already assumed in the fact pattern.