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Fair Value

12 Months Ended

Dec. 31, 2022

Our accounting policy for the fair value measurement of cash equivalents is described in Note 2 - Summary of Significant Accounting Policies.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below set forth, by level, our financial assets that are accounted for at fair value for the respective periods. The table does not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):


	Fair Value Measured at Reporting Date Using
December 31, 2022	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents:
Money market funds	$	291,903	$	—	$	—	$	291,903


	$	291,903	$	—	$	—	$	291,903
Liabilities


Derivatives:

Embedded EPP derivatives	—		—		5,895		5,895

	$	—	$	—	$	5,895	$	5,895


	Fair Value Measured at Reporting Date Using
December 31, 2021	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents:
Money market funds	$	297,034	$	—	$	—	$	297,034
	$	297,034	$	—	$	—	$	297,034
Liabilities
Derivatives:
Option to acquire a variable number of shares of Class A Common Stock	$	—	$	13,200	$	—	$	13,200
Embedded EPP derivatives	—		—		6,461		$	6,461
	$	—	$	13,200	$	6,461	$	19,661

Money Market Funds - Money market funds are valued using quoted market prices for identical securities and are therefore classified as Level 1 financial assets.

Option to Acquire a Variable Number of Shares of Class A Common Stock - We estimated the fair value of SK ecoplant’s option to acquire a variable number of shares of Class A common stock (the “Option”) using a Monte Carlo simulation model using a stochastic volatility parameter, which is calibrated and considers the observable implied volatility, the stock price of our Class A Common Stock and market interest rates. As the fair value is determined based on observable inputs, the Option to acquire a variable number of shares of Class A common stock is classified as a Level 2 financial liability. The fair value of the Option was reflected in accrued expenses and other current liabilities in our consolidated balance sheet as of December 31, 2021.

SK ecoplant Notice to Exercise the Option to Acquire a Variable Number of Shares of Class A Common Stock - On August 10, 2022, pursuant to the SPA, SK ecoplant notified us of its intent to exercise its option to purchase additional shares of our Class A common stock, pursuant to a Second Tranche Exercise Notice (as defined in the SPA), and it elected to purchase

13,491,701 shares at a purchase price of $23.05 per share. Upon receipt of SK ecoplant’s notice the Option was no longer accounted for as liability. Please refer to Note 17 - SK ecoplant Strategic Investment for details.

Natural Gas Fixed Price Forward Contracts - Our natural gas fixed price forward contracts were valued using a combination of factors including the counterparty’s credit rating and estimates of future natural gas prices. The leveling of each financial instrument is reassessed at the end of each period and is based on pricing information received from third-party pricing sources. As of December 31, 2021, our remaining natural gas fixed price forward contracts had no fair value. In March 2022, these contracts expired. As of December 31, 2022, we did not have any natural gas fixed price forward contracts.

The following table provides the number and fair value of our natural gas fixed price forward contracts (in thousands):

December 31, 2022

December 31, 2021

Number of

Contracts

(MMBTU)²

Fair
Value

Number of
Contracts
(MMBTU)²

Fair
Value

Liabilities¹:

Natural gas fixed price forward contracts (not under hedging relationships)

—

¹ Recorded in current liabilities and derivative liabilities in the consolidated balance sheets.

² One MMBTU is a traditional unit of energy used to describe the heat value (energy content) of fuels.

For the years ended December 31, 2022, 2021 and 2020, we recognized no unrealized gain/loss, an unrealized gain of $1.1 million and an unrealized loss of $0.1 million, respectively. We realized no gain/loss, gains of $1.5 million, and gains of $4.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, on the settlement of these contracts in cost of revenue on our consolidated statements of operations.

Embedded Escalation Protection Plan Derivative Liability in Sales Contracts - We estimate the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo simulation model, which considers various potential electricity price curves over the sales contracts’ terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. We have classified these derivatives as a Level 3 financial liability.

For the years ended December 31, 2022, 2021 and 2020 we recorded the fair value of the embedded EPP derivatives with no material unrealized gains or losses recorded in either of the three years ended December 31, 2022, 2021 and 2020 in our consolidated statements of operations.


	Natural Gas Fixed Price Forward Contracts		Embedded EPP Derivative Liability		Total
Liabilities at December 31, 2020	$	2,574	$	5,542	$	8,116
Changes in fair value	(2,574)		919		(1,655)
Liabilities at December 31, 2021	—		6,461		6,461

Changes in fair value	—		(566)		(566)

Liabilities at December 31, 2022	$	—	$	5,895	$	5,895

To estimate the liabilities related to the EPP contracts an option pricing method was implemented through a Monte Carlo simulation. The unobservable inputs were simulated based on the available values for avoided cost and cost of electricity as calculated for December 31, 2022 and 2021, using an expected growth rate of 7% and 7% over the contracts’ life and volatility of 15% and 20%, respectively. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 2022. Avoided cost is the transmission and distribution cost expressed in dollars per kilowatt hours avoided in the given year of the contract, calculated using the billing rates of the effective utility tariff applied during the year to the host account for which usage is offset by the generator. If the billing rates within the utility tariff change during the measurement period, the average of the amount of charge for each rate shall be weighted by the number of effective months for each amount.

The inputs listed above would have had a direct impact on the fair values of the above derivatives if they were adjusted. Generally, an increase in natural gas prices and a decrease in electric grid prices would each result in an increase in the estimated fair value of our derivative liabilities.

Financial Assets and Liabilities and Other Items Not Measured at Fair Value on a Recurring Basis

Customer Receivables and Debt Instruments - The fair value for customer financing receivables is based on a discounted cash flow model, whereby the fair value approximates the present value of the receivables (Level 3). The senior secured notes, term loans and convertible notes are based on rates currently offered for instruments with similar maturities and terms (Level 3). The following table presents the estimated fair values and carrying values of customer receivables and debt instruments (in thousands):


	December 31, 2022				December 31, 2021
	Net Carrying Value		Fair Value		Net Carrying Value		Fair Value

Customer receivables
Customer financing receivables	$	—	$	—	$	45,269	$	38,334
Debt instruments
Recourse:





10.25% Senior Secured Notes due March 2027	60,960		60,472		68,968		72,573
2.5% Green Convertible Senior Notes due August 2025	224,832		309,488		222,863		356,822
Non-recourse:

7.5% Term Loan due September 2028	—		—		29,006		35,669

6.07% Senior Secured Notes due March 2030	—		—		73,262		83,251
3.04% Senior Secured Notes due June 2031	125,787		117,028		132,631		137,983

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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