7 August 2024

Mr. Andreas Barckow
Chair
International Accounting Standards Board

Re: Contracts for Renewable Electricity
Dear Mr. Barckow,
The Corporate Accounting Committee (CAC) of the Securities Analysts Association of Japan(SAAJ) is pleased to comment on the Exposure Draft Contracts for Renewable Electricity (hereinafterreferred to as the “ED”) published on 8 May 2024.
The SAAJ is a not-for-profit organization for professionals in the areas of investment and finance,
offering education and certification programs in these fields. Its certified member analysts (holdingthe CMA designation) number around 29,000.
The CAC is a standing committee of the SAAJ composed of 11 members, most of whom are usersof financial statements including equity and credit analysts, portfolio managers, and academics.
The SAAJ sent a questionnaire survey on the ED to members of the CAC and CMAs, of which 12
responded. This comment letter is based on the ED questionnaire results and the discussions among
members of the CAC. Please see the attached questionnaire results.
Below are our comments on each question.

Question 1—Scope of the proposed amendments
Paragraphs 6.10.1–6.10.2 of the proposed amendments to IFRS 9 would limit the application of theproposed amendments to only contracts for renewable electricity with specified characteristics.
Do you agree that the proposed scope would appropriately address stakeholders’ concerns (asdescribed in paragraph BC2 of the Basis for Conclusions on this Exposure Draft) while limiting
unintended consequences for the accounting for other contracts? Why or why not?

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If you disagree, please specify with which aspect of the proposals you disagree. What would you
suggest instead and why?
We agree with these proposals. In Q1 of our questionnaire, 75.0% of respondents agreed.
The proposals in the ED would add an “exception to the exception” and an “exception” to the current
standards, as we comment in Questions 2 and 3, by limiting the scope of application to only contracts
for renewable electricity with specified characteristics. This could potentially result in different
standards being applied to similar transactions.
Some suggested that fundamental and permanent standards for all renewable energy certificates(RECs) should be developed, while others are concerned that the proposals in the ED could beperceived as favoring specific transactions and industries.
Nevertheless, reducing greenhouse gas emissions is a global issue and there is an urgent need toresolve the accounting issues in some jurisdictions that promote power purchase agreements (PPAs)
as a matter of policy. Therefore, limiting the scope of application may be justified as a means ofaddressing these issues.
We believe that the scope of the proposed amendment is designed so that the proposed requirements
cannot be applied by analogy to such contracts with a significant degree of control over the amount ofpower generation, including contracts for biomass energy and some contracts for hydroelectricity. This
would appropriately address stakeholders’ concerns while limiting unintended consequences for theaccounting of other contracts.

Question 2—Proposed ‘own-use’ requirements
Paragraph 6.10.3 of the proposed amendments to IFRS 9 includes the factors an entity would berequired to consider when applying paragraph 2.4 of IFRS 9 to contracts to buy and take deliveryof renewable electricity that have specified characteristics.
Do you agree with these proposals? Why or why not?
If you disagree, please specify with which aspect of the proposals you disagree. What would you
suggest instead and why?
We agree with these proposals. In Q2 of our questionnaire, 72.7% of respondents agreed.

―2―The proposals would add an “exception to the exception” for physical PPAs to the “own-userequirements” for “contracts to buy or sell a non-financial item” in the current IFRS 9 FinancialInstruments. An “exception to the exception” may not be in line with the concept of principle-based
IFRS Accounting Standards. It could increase the complexity of accounting and reduce theunderstandability of users.
However, this “exception to the exception” may be justified because recognizing changes in the fairvalue of physical PPAs, most of which are very long-term fixed-price contracts, in profit or loss would
make the entity’s performance highly volatile over a long period of time, which is not desirable forusers to assess the profitability of the entity.

Question 3—Proposed hedge accounting requirements
Paragraphs 6.10.4–6.10.6 of the proposed amendments to IFRS 9 would permit an entity todesignate a variable nominal volume of forecast electricity transactions as the hedged item if
specified criteria are met and permit the hedged item to be measured using the same volume
assumptions as those used for measuring the hedging instrument.
Do you agree with these proposals? Why or why not?
If you disagree, please specify with which aspect of the proposals you disagree. What would you
suggest instead and why?
We basically agree with these proposals, but have a suggestion for improvement. In Q3 of ourquestionnaire, 63.6% of respondents agreed.
The proposals would add an “exception” for virtual PPAs to the “hedge accounting requirements”
in the current IFRS 9 Financial Instruments.
This “exception” may be justified because the current standards do not contemplate contracts suchas virtual PPAs and, as commented to Question 2, recognizing changes in the fair value of virtual PPAs,
most of which are very long-term fixed-price contracts, in profit or loss would make the entity’s
performance highly volatile over a long period of time, which is not desirable for users to assess theprofitability of the entity.
However, we would like to suggest an improvement. Paragraph 6.10.6 of the proposed amendment
to IFRS 9 refers to the qualifying criteria for cash flow hedges, but does not explicitly specify themethod for assessing effectiveness. Therefore, we encourage the IASB to add an illustrative example
to clarify the difference between volume and price aspects.

―3―Question 4—Proposed disclosure requirements
Paragraphs 42T–42W of the proposed amendments to IFRS 7 would require an entity to disclose
information that would enable users of financial statements to understand the effects of contracts
for renewable electricity that have specified characteristics on:(a) the entity’s financial performance; and(b) the amount, timing and uncertainty of the entity’s future cash flows. Do you agree with these
proposals? Why or why not?
If you disagree, please specify with which aspect of the proposals you disagree. What would you
suggest instead and why?
We disagree with one of these proposals. In Q4 of our questionnaire, 16.7% of respondents agreed,
25.0% disagreed, and 58.3% neither agreed nor disagreed; “agree” was a minority response.
We are very concerned that for contracts for renewable electricity that are not measured at fair value
through profit or loss, disclosure of “(ii) the volume of renewable electricity a seller under the contracts
expects to sell or a purchaser under the contracts expects to purchase over the remaining duration ofthe contracts” is permitted as well as disclosure of “(i) the fair value of the contracts at the reportingdate”.
Most contracts for renewable electricity covered by the ED are very long-term fixed-price contracts
that are highly risky and have significant fair value volatility. As a result, the contracting parties bearsignificant counterparty risk over the life of the contract. Fair value is an important component ofrecognizing this counterparty risk.
The fair value disclosure in (i) and the volume disclosure in (ii) are completely different in nature.
If volume disclosure is permitted, it could encourage contracting parties to enter into contracts without
fully understanding the counterparty risk, thereby expanding the market in an unsound manner. Inaddition, volume disclosure would not enable users to fully understand how the contracts affect theamount, timing and uncertainty of the entity’s future cash flows (including the status of counterpartyrisk).
Adding contract price information to the volume information disclosed in (ii) might enable users toestimate something close to fair value. However, this would be onerous for preparers to disclose andfor users to calculate, which is not desirable.

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We understand that determining the fair value of physical and virtual PPAs is complex and subject
to high levels of measurement uncertainty. The fact that these are bilateral contracts between thegenerator and the purchaser, as opposed to typical derivatives where one of the contracting parties isa financial instrument dealer, may also make it difficult to determine the fair value.
However, to ensure that the market does not expand in an unsound manner where contracting parties
enter into contracts without fully understanding the counterparty risk, and to enable users to fully
understand how the contracts affect the amount, timing and uncertainty of the entity’s future cash
flows, we encourage the IASB to require an entity to disclose only fair value. We believe that our
proposed disclosure requirement would encourage market participants to standardize how fair value
is determined, thereby contributing to the sound development of the market.

Question 5—Proposed disclosure requirements for subsidiaries without publicaccountability
Paragraphs 67A–67C of the proposed amendments to the forthcoming IFRS 19 Subsidiaries without
Public Accountability: Disclosures would require aneligible subsidiary to disclose information about its contracts for renewable electricity withspecified characteristics.
Do you agree with these proposals? Why or why not?
If you disagree, please specify with which aspect of the proposals you disagree. What would you
suggest instead and why?
We agree with these proposals. In Q5 of our questionnaire, 41.7% of respondents agreed, 16.7%
disagreed, and 41.7% neither agreed nor disagreed.
Although simplified disclosure should be allowed for subsidiaries without public accountability, it
is not necessary to oppose the proposals.
Some suggested that not only subsidiaries but also associates and joint ventures should be covered
because there are many companies and projects with contracts for renewable electricity that are notsubsidiaries to all shareholders.

Question 6—Transition requirements
The IASB proposes to require an entity to apply:―5―

(a) the amendments to the own-use requirements in IFRS 9 using a modified retrospective
approach; and(b) the amendments to the hedge accounting requirements prospectively.
Early application of the proposed amendments would be permitted from the date the amendments
were issued.
Do you agree with these proposals? Why or why not?
If you disagree, please specify with which aspect of the proposals you disagree. What would you
suggest instead and why?
We agree with these proposals. In Q6 of our questionnaire, 91.7% of respondents agreed.

Question 7—Effective date
Subject to feedback on the proposals in this Exposure Draft, the IASB aims to issue the amendmentsin the fourth quarter of 2024. The IASB has not proposed an effective date before obtaining input
about the time necessary to apply the amendments.
In your view, would an effective date of annual reporting periods beginning on or after 1 January2025 be appropriate and provide enough time to prepare to apply the proposed amendments? Whyor why not?
If you disagree, what effective date would you suggest instead and why?
We think that an effective date of annual reporting periods beginning on or after 1 January 2025
would be appropriate. In Q7 of our questionnaire, 63.6% of respondents agreed.
Although we are unsure if companies will have enough time to prepare, we do not oppose to anearlier effective date given the urgent need to resolve the accounting issues.

Sincerely yours,

Satoshi Komiyama
Chair
Corporate Accounting Committee―6―Attachment: Questionnaire Results on the ED
The SAAJ sent a questionnaire survey on the ED to members of the CAC and CMAs, of which 12
responded.
Q1: Scope of the proposed amendments…Question 1(a) Yes

975.0%(b) No216.7%(c) Neither “Yes” nor “No”

18.3%

12100.0%(a) Yes872.7%(b) No327.3%(c) Neither “Yes” nor “No”

00.0%

11100.0%(a) Yes763.6%(b) No19.1%(c) Neither “Yes” nor “No”

327.3%

12100.0%(a) Yes216.7%(b) No325.0%(c) Neither “Yes” nor “No”

758.3%

12100.0%

Total
Q2: Proposed ‘own-use’ requirements…Question 2

Total
Q3: Proposed hedge accounting requirements…Question 3

Total
Q4: Proposed disclosure requirements…Question 4

Total

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Q5: Proposed disclosure requirements for subsidiaries without public accountability…Question 5(a) Yes

541.7%(b) No216.7%(c) Neither “Yes” nor “No”

541.7%

12100.0%(a) Yes1191.7%(b) No18.3%(c) Neither “Yes” nor “No”

00.0%

12100.0%(a) Yes763.6%(b) No

327.3%(c) Neither “Yes” nor “No”

19.1%

12100.0%

Total
Q6: Transition requirements…Question 6

Total
Q7: Effective date…Question 7

Total―2―