Renewable energy producer: the accountant's role

Quick answer. A specialised renewable energy accountant secures revenue recognition from the feed-in tariff (OA) or the market premium (CR), sets up the dismantling provisions, handles the IFER, structures the project company and produces the reporting lenders expect. Over contracts of 12 to 20 years, this framing protects the farm's profitability and its compliance from commissioning onwards.

Producing solar or wind electricity is unlike any other commercial activity. Revenue does not come from an order book: it comes from a public support mechanism backed by a heavy asset, capitalised over two decades. For a director launching a farm, the challenge is not routine bookkeeping but building an accounting and tax structure that holds up before the bank, before the tax authority, and on the day of a sale. Below we walk through the four judgement calls that make the difference in this sector.

A producer's turnover depends neither on the commercial cycle nor on a sales effort. It is carried by a long-term contract and a substantial initial investment. Two schemes shape this revenue, both operated by EDF Obligation d'Achat.

• The feed-in tariff (obligation d'achat, OA): EDF, or a local distribution company, buys the electricity at a regulated tariff set by the contract, independent of the market price. The sale covers the entire output, or only the surplus in the case of self-consumption.
• The market premium (complément de rémunération, CR): the producer sells its electricity on the market and receives a premium equal to the difference between a reference tariff and a reference market price.

Under OA, turnover corresponds to the electricity delivered, valued at the contractual tariff: the reading is straightforward, and so is the regularity of collection. Under CR, revenue combines the market sale and the premium, and that is where the difficulty lies: the precise matching of the premium to the period deserves to be confirmed file by file. This is exactly the kind of judgement call where a generalist firm misses the mark, because it reasons as if for an ordinary sale of goods.

In the files we see, this is the most frequent and most costly point of friction. For wind power, article L515-46 of the environment code makes the operator, or in the event of default the parent company, responsible for dismantling and restoring the site. From the start of production, it must set up financial guarantees, reassessed every 5 years.

The amended order of 26 August 2011 sets the reference amount: 50,000 euros per turbine with a unit installed capacity less than or equal to 2 MW, plus 25,000 euros per additional MW above 2 MW.

In accounting terms, the treatment follows a precise logic. Under the French general accounting plan (PCG, article 213-8 on the entry cost of fixed assets and article 321-10 on provisions), the initial estimate of dismantling and site restoration costs is included in the acquisition cost of the asset: this is the so-called dismantling asset, recorded against a matching provision as a liability. This asset follows its own depreciation schedule, and the obligation arises as soon as the farm is built or commissioned, not at the end of its life.

The classic mistake is to record the dismantling charge at the end of operations, or simply to ignore the asset on the balance sheet. The consequences are mechanical:

1. the result of each period is distorted, because the asset's depreciation and the provision charge are not spread over time;
2. the value of the farm presented to lenders does not reflect the real end-of-life commitment;
3. the correction, when it finally comes (audit, sale, change of accountant), lands in one go and damages a full period.

Electricity production installations with a capacity of at least 100 kW are subject to the flat-rate tax on network companies (IFER), an annual flat-rate local tax. Wind and tidal power fall under article 1519 D of the General Tax Code; photovoltaic and hydro fall under article 1519 F.

The key feature: the IFER does not depend on the result but on installed capacity. It is therefore a recurring cost to factor into the forecast from the outset, even in years when the farm is not profitable. The applicable rate must be checked for each installation against the text in force, as it changes over time. For self-consumption producers selling their surplus, the same reflexes apply: we set out the specifics of solar in our analysis of accounting and tax for self-consumption photovoltaic.

Most farms are held by a project company (Special Purpose Vehicle, SPV) dedicated to a single asset. The project debt is generally non-recourse, or limited-recourse: lenders are repaid from the farm's cash flows alone, secured by the OA or CR contract. In other words, the bank does not look at the director's personal assets, it looks at the farm's ability to service its debt.

In practice, the accountant produces financial information that is readable for the lender: tracking of debt service coverage ratios (DSCR), cash-flow reporting, compliance with contractual covenants. Accounts kept at project level are not a convenience, they are a financing condition. When several farms sit under a holding company, this need for asset-level steering connects with the issues we handle in outsourced CFO services for startups and SMEs, and the tax side of the structure falls within our corporate tax support in Paris.

In this sector, an accountant's value does not lie in routine bookkeeping but in four structuring judgement calls: the matching of OA or CR revenue, the dismantling asset and provision pairing, the integration of the IFER into the forecast, and the quality of the reporting expected by lenders.

In a recent review of a wind farm taken over from another firm, we found that the dismantling provision had indeed been recorded, but that the matching dismantling asset appeared nowhere among the fixed assets: the charge therefore went straight to expenses, year after year, with no spreading backed by depreciation. As a result, the accounting profit was understated and, above all, the presentation made to the bank did not match the real end-of-life commitment. The correction required a full reframing, whereas a clean entry from commissioning would have avoided it.

Hayot Expertise tip. The most underestimated risk is almost always dismantling. A poorly calibrated provision or a forgotten asset shows up on the balance sheet, at audit and when the farm is sold. Have the asset and provision pairing framed from commissioning: it is the item that costs the most to catch up ten years later.

Each farm has its own configuration, and several situations call for tailored treatment.

• Self-consumption with surplus sale: under OA, only the fraction sold back to EDF enters turnover at the tariff, which requires separate tracking of self-consumed output.
• Switch from OA to CR or vice versa: a change of support mechanism alters revenue recognition and premium matching, to be reworked in full.
• Farm held by a foreign parent: the SPV structure, cash-pooling agreements and the parent's dismantling responsibility deserve a joint accounting and legal reading.
• Repowering or actual dismantling: the reversal of the provision and the disposal of the dismantling asset must be anticipated to avoid a jolt on the period concerned.

• Never defer the dismantling charge to the end of life: the obligation arises at commissioning.
• Check that the dismantling asset appears among the fixed assets, mirroring the provision on the liabilities side.
• Reassess the financial guarantees every 5 years for wind power and document each revision.
• Record the IFER in the forecast even in loss-making years, since it is flat-rate.
• Keep the accounts at project-company level, without mixing with other assets.

A wind producer commissions a farm of four turbines, each with a unit capacity less than or equal to 2 MW. From commissioning, the dismantling asset must be recorded in the cost of the fixed asset, the matching provision set up, and the financial guarantees provided for by the 2011 order calibrated, revisable every 5 years. In parallel, the IFER under article 1519 D of the General Tax Code enters the forecast, and DSCR reporting is configured for the bank. Nothing exceptional in this sequence, but every missing link weakens the financing case and the result presented.

• Identify the support mechanism (OA or CR) and its revenue treatment
• Record the dismantling asset and provision from commissioning
• Reassess the financial guarantees every 5 years (wind)
• Factor the IFER (capacity of at least 100 kW) into the forecast
• Keep the accounts at project-company level
• Track the DSCR and covenants for lenders