- Blog
- December 11, 2025
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 energyrrangements 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.
| Initiative | Business imperative | Illustrative listing of financial reporting considerations | Potential financial reporting impacts |
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Power Purchase Arrangements (PPAs) |
Long-term contracts to purchase power. PPAs enable companies to secure long-term energy capacity and pricing. The contractual terms in PPAs can differ, but they generally provide an off taker with the right to some or all of the capacity of a generating asset, energy, ancillary services, renewable energy credits (RECs), and/or battery storage. |
The rights and obligations included in PPAs can vary significantly; the arrangements generally involve more complex legal structures that require an analysis of a wider variety of accounting models than compared to typical service contracts:
The potential impacts to the company’s balance sheet will drive impacts to earnings, EBITDA and other KPIs, such as leverage or working capital ratios. |
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| Virtual PPAs |
Because “VPPAs” are financial contracts where, typically, the parties settle price differences without taking physical delivery of power, companies may utilize VPPAs as a financial hedge. VPPAs may also be used by companies to meet sustainability targets without altering their physical energy infrastructure. In this case, the VPPA includes RECs, allowing companies to claim clean energy use and meet sustainability goals. |
Certain VPPAs may include stand-alone and/or embedded features that would meet the definition of derivatives for accounting purposes.³ If the contract includes RECs, additional considerations apply. In practice, many companies consider alternative accounting guidance as an acceptable analogy (e.g., inventory or intangible accounting), depending on the company’s planned use and retirement of the certificates. |
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| Energy-as-a-Service (EaaS) | Often allows companies to secure capital outlays and outsource the installation, maintenance, and financing of more efficient on-site energy systems. |
EaaS offerings may raise the following accounting issues:
The impacts to the company’s balance sheet will drive impacts to earnings, EBITDA and other KPIs, such as leverage or working capital ratios. |
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| On-Site Infrastructure Investments | Initiatives may include installation of battery power storage, on-site natural gas turbines, geo-thermal systems or solar panels, to name a few. |
Depending on the form of investment, specific cost treatment (including deferrals) for property, plant and equipment may apply. Other considerations include unit of accounting, application of lease accounting, treatment of any financing costs⁶, and financial statement gross versus net presentation of costs. |
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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:
Illustrative listing of financial reporting considerations
Potential financial reporting impacts
Potential financial reporting impacts
Often allows companies to secure capital outlays and outsource the installation, maintenance, and financing of more efficient on-site energy systems.
Potential financial reporting impacts
Initiatives may include installation of battery power storage, on-site natural gas turbines, geo-thermal systems or solar panels, to name a few.
Potential financial reporting impacts
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
Virtual Power Purchase Arrangements (VPPAs)
- Potential mark-to-market adjustments, if derivative accounting applies
On-Site Infrastructure Investments
EBITDA
- Adjusted for lease presentation
- Adjusted for mark-to-market accounting
- May exclude impact of RECs accounted for as intangible assets
- Adjusted for mark-to-market accounting, if applicable
- Adjusted for lease presentation
- Impact to expense classification and timing
- Adjusted for lease presentation
- Excludes any non-cash expenses
Balance Sheet
- Recognize lease related obligations
- Record derivative(s) at fair value
- If RECs included, may result in intangible assets or inventory
- Record derivative(s), if applicable
- May reflect lease or debt obligations
- Include or exclude investee assets and liabilities
- May reflect lease or debt obligations
- Capitalization of PPE-related expenses
Statement of Cash Flows
- Impact to classifications
- Potentially significant disconnect between expense and cash flows timing
| Potential Financial Reporting Impacts | Power Purchase Arrangements (PPAs) | Virtual Power Purchase Arrangements (VPPAs) | Energy-as-a-Service (EaaS) | On-Site Infrastructure Investments |
| Net Income |
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| EBITDA | ||||
| Balance Sheet | ||||
| Statement of Cash Flows |
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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Accounting Advisory Services Leader, PwC US
