Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Swaps

We use various financial instruments to minimize the impact of variable market conditions on our results of operations. We use interest rate swaps to minimize the impact of fluctuations of interest rate changes on our outstanding debt where LIBOR is applied. We do not enter into derivative contracts for trading or speculative purposes.

The fair values of the derivatives designated as cash flow hedges as of September 30, 2020 and December 31, 2019 on our condensed consolidated balance sheets were as follows (in thousands):



	September 30, 2020		December 31, 2019
Assets
Prepaid expenses and other current assets	$	—	$	3

	$	—	$	3

Liabilities

Accrued expenses and other current liabilities	$	2,075	$	782
Derivative liabilities	15,197		8,459
	$	17,272	$	9,241

PPA V - In July 2015, PPA V entered into nine interest rate swap agreements to convert a variable interest rate debt to a fixed rate and we designated and documented the interest rate swap arrangements as cash flow hedges. Three of these swaps matured in 2016, three will mature on December 21, 2021 and the remaining three will mature on September 30, 2031. We evaluate and calculate the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive income (loss) and was recognized as interest expense on settlement. The notional amounts of the swaps were $182.4 million and $184.2 million as of September 30, 2020 and December 31, 2019, respectively.

We measure the swaps at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk. We realized immaterial gains attributable to the change in valuation during the three months ended September 30, 2020 and 2019, respectively, and were included in other income (expense), net, in the condensed consolidated statements of operations. We realized a gain of $0.1 million and an immaterial gain attributable to the change in valuation during the nine months ended September 30, 2020 and 2019, respectively, and they were included in other income (expense), net, in the condensed consolidated statements of operations.

The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive loss and in earnings were as follows (in thousands):


	Three Months Ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Beginning balance	$	17,881	$	9,146	$	9,238	$	3,548
(Gain) loss recognized in other comprehensive income/loss	(72)		2,472		9,212		8,062
Amounts reclassified from other comprehensive loss to earnings	(501)		(28)		(1,068)		75
Net (gain) loss recognized in other comprehensive income/loss	(573)		2,444		8,144		8,137
Gain recognized in earnings	(36)		(48)		(110)		(143)
Ending balance	$	17,272	$	11,542	$	17,272	$	11,542

For the three months ended September 30, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contract and recognized an unrealized gain of $0.7 million and an unrealized loss of $0.8 million, respectively. For the nine months ended September 30, 2020 and 2019, we recorded the fair value of our natural gas fixed price forward contract and recognized an immaterial unrealized gain and an unrealized loss of $1.5 million, respectively.

For the three months ended September 30, 2020 and 2019, we recognized a realized gain of $1.2 million and a realized gain of $1.1 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the condensed consolidated statements of operations. For the nine months ended September 30, 2020 and 2019, we recognized a realized gain of $3.7 million and a realized gain of $2.7 million, respectively, on the settlement of these contracts. Gains and losses are recorded in cost of revenue on the condensed consolidated statements of operations.

Embedded EPP Derivatives in Sales Contracts

Embedded EPP Derivatives in Sales Contracts - We estimated the fair value of the embedded EPP derivatives in certain sales contracts using a Monte Carlo simulation model, which considers various potential electricity price forward curves over the sales contracts' terms. We use historical grid prices and available forecasts of future electricity prices to estimate future electricity prices. The grid pricing EPP guarantees that we provided in some of our sales arrangements represent an embedded derivative, with the initial value accounted for as a reduction in product revenue and any changes, reevaluated quarterly, in the fair market value of the derivative recorded in gain (loss) on revaluation of embedded derivatives. We recognized an unrealized gain of $1.5 million and an unrealized loss of $0.5 million attributable to the change in fair value for the three months ended September 30, 2020 and 2019, respectively. We recognized an unrealized gain of $2.2 million and an unrealized loss of $1.6 million attributable to the change in fair value for the nine months ended September 30, 2020 and 2019, respectively. These gains and losses were included within loss on revaluation of embedded derivatives in the condensed consolidated statements of operations. The fair value of these derivatives was $4.0 million and $6.2 million as of September 30, 2020 and December 31, 2019, respectively.