Establish scope before counting megawatt-hours
The 2026 amendment provides specific own-use guidance for a qualifying contract to buy and take delivery of nature-dependent electricity. Selling unused electricity because the market requires it does not necessarily defeat own-use. Under Ind AS 109 paragraphs B2.7 and B2.8, establish that the company has been and expects to be a net purchaser for the contract period. This is a scope assessment under paragraph 2.4; make any hedge accounting decision separately.
Read the applicable text: MCA Gazette: Companies (Indian Accounting Standards) Amendment Rules, 2026, G.S.R. 725(E) ICAI: Ind AS amendments and MCA notification index.
Read the volume and settlement terms
Paragraph 2.3A addresses contracts exposing the entity to variability in underlying electricity volumes driven by uncontrollable natural conditions. Paragraph 2.3B limits this special guidance to such contracts; it is not applied by analogy to other arrangements. A wind or solar label alone is insufficient. B2.7 deals with qualifying purchase and delivery contracts and explains how mismatched generation and consumption can give rise to sales of unused power that market design leaves the company with no practical ability to avoid. Check the settlement mechanism and the market’s operating rules before applying this guidance.
Reconcile quantities in the same market
Identify sales of unused electricity and compare them with sufficient offsetting electricity purchases in the same market. Reconcile delivery, own consumption, unused sales and purchases with meter and settlement statements. Where operations span several markets, establish the boundary from the contracts and market rules before aggregating data. A company-wide net purchase figure does not by itself establish the condition.
Use an evidence window that reflects operations
Use reasonably supportable past, current and expected transactions available without undue cost or effort. Select a reasonable time horizon reflecting both seasonal generation and the company’s demand cycle. The period used to establish whether the company has been a net purchaser cannot exceed 12 months. Use forward-looking evidence as well, including plant shutdowns or load changes, to support expectations over the contract period.
Document the first applicable period and disclosures
The amendments apply for annual reporting periods beginning on or after 1 April 2026. Under paragraph 7.2.51, apply paragraphs 2.3A–2.3B, 2.8 and B2.7–B2.8 retrospectively under Ind AS 8 using facts and circumstances at initial application, which is the start of a reporting period and need not be an annual-period start. Prior periods may be restated only without hindsight. If they are not restated, recognise the carrying-amount difference at initial application in opening retained earnings or another appropriate equity component. Paragraph 7.2.52 also provides a transition designation option under paragraph 2.5. For qualifying own-use contracts outside Ind AS 109, Ind AS 107 paragraphs 5B and 30A require one note explaining exposures, unrecognised commitments and the effects on financial performance. Under paragraph 44OO, omit comparative disclosures under paragraphs 30A–30C if the Ind AS 109 comparatives were not restated.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Same-market surplus purchases
A plant sells 120 MWh of unused contract power because the market requires immediate disposal and buys 170 MWh in that same market over an appropriate assessment period. Purchases exceed such sales by 50 MWh. This supports the quantity test, subject to the other scope and forward-looking evidence.
Illustrative example 2: Purchases in another market
Unused sales total 140 MWh in Market A. The entity buys 95 MWh in A and 70 MWh in B. Group purchases total 165 MWh, but Market A is short by 45 MWh. Purchases in B do not close that gap.
Illustrative example 3: History cannot cure an expected shortfall
Historical same-market purchases of 310 MWh cover 240 MWh of unused sales by 70 MWh. During a forecast plant outage, expected purchases of 180 MWh fall short of expected unused sales of 230 MWh by 50 MWh. Investigate the expected net-purchaser conclusion; the historical surplus is insufficient on its own.
Illustrative example 4: A wider window masks a recent shortfall
An 18-month file shows 800 MWh of purchases and 740 MWh of unused sales. In the latest 12 months, the respective amounts are 490 and 520 MWh. The wider surplus of 60 MWh cannot substitute for the 12-month assessment, which shows a 30 MWh deficit.
Illustrative example 5: Combine operating seasons where appropriate
For an evidenced six-month assessment period that captures both cycles, the plant records 60 MWh bought and 100 MWh of unused sales in the first three months, and 130 MWh bought and 50 MWh sold in the next three. The combined 190 MWh of purchases cover 150 MWh of sales by 40 MWh; validate the window and expected transactions separately.
Illustrative example 6: Meter-to-market reconciliation
The plant receives 1,000 MWh under a qualifying contract and consumes 870 MWh directly, leaving 130 MWh sold as unused electricity. It purchases 155 MWh in the same market. The offsetting margin is 25 MWh; the 870 MWh of direct use is not a second offset.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Catalogue electricity contracts and delivery terms | Executed agreements and metering or settlement terms. |
| 2 | Test exposure to natural variation in volume | Contract clauses and actual generation data. |
| 3 | Confirm purchase and delivery facts | Delivery logs and settlement mechanism. |
| 4 | Explain why sales cannot practically be avoided | Market rules, dispatch records and settlement data. |
| 5 | Determine the relevant market for each sale | Market rules, locations and contract analysis. |
| 6 | Reconcile unused sales and matching purchases | Meter-to-settlement quantity bridge in MWh. |
| 7 | Choose and document the historical period | Seasonality and operating-cycle evidence, within 12 months. |
| 8 | Support the expectation for the contract period | Demand and generation forecasts with outage sensitivity. |
| 9 | Document transition and disclosures | Initial-application memo and Ind AS 107 disclosure file. |
| 10 | Retest after material changes | Updated market terms, load forecasts and approved conclusion. |
Sixteen practitioner FAQs
1. Does every solar supply agreement qualify?
No. Test the contractual exposure to naturally variable volumes and the relevant scope conditions.
2. Does selling any unused electricity automatically fail own-use?
No. B2.7 addresses certain unavoidable sales under qualifying facts.
3. Can purchases elsewhere offset sales in the relevant market?
No. The offsetting purchases must be in the same market.
4. Can management use company-wide net power spend?
No. Reconcile electricity quantities in the relevant market.
5. Can unused sales be computed from annual generation alone?
No. Use delivery, consumption and settlement evidence for the company.
6. What if a virtual contract provides no physical delivery?
Assess its actual terms and applicable scope provisions. Do not assume the purchase-and-delivery guidance decides it.
7. Does the standard impose a mandatory 12-month historical window?
No. It caps the historical period at 12 months.
8. Can a shorter period be supportable?
Yes, if it reasonably reflects generation and demand variability on the facts.
9. Is a past net-purchase position sufficient?
No. Support the expectation of being a net purchaser over the contract period.
10. Do upcoming changes in manufacturing load matter?
Yes. Reflect supportable changes in the expected transaction evidence.
11. Should sales by choice be pooled with forced sales?
Identify their nature separately and assess what the activity indicates under paragraph 2.4.
12. Does a numerical surplus establish scope on its own?
No. Review the contract, market, practical inability to avoid the sales and forward evidence.
13. Does the scope conclusion establish hedge accounting?
No. Test any proposed hedge under the separate applicable requirements.
14. Must prior comparatives be restated?
No. Under paragraph 7.2.51, restatement is optional only if possible without hindsight.
15. Do contracts outside Ind AS 109 have disclosures?
Check Ind AS 107 paragraph 30A for qualifying own-use contracts.
16. What should trigger a fresh review?
Material changes in the agreement, market rules, generation pattern or expected demand.
Official sources
MCA Gazette: Companies (Indian Accounting Standards) Amendment Rules, 2026, G.S.R. 725(E) ICAI: Ind AS amendments and MCA notification index