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Fair Value

3 Months Ended

Mar. 31, 2021

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
March 31, 2021	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents:
Money market funds	$	150,367	$	—	$	—	$	150,367


	$	150,367	$	—	$	—	$	150,367
Liabilities

Derivatives:
Natural gas fixed price forward contracts	$	—	$	1,650	$	—	$	1,650

Embedded EPP derivatives	—		—		6,060		6,060
Interest rate swap agreements	—		11,301		—		11,301
	$	—	$	12,951	$	6,060	$	19,011


	Fair Value Measured at Reporting Date Using
December 31, 2020	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents:
Money market funds	$	235,902	$	—	$	—	$	235,902


	$	235,902	$	—	$	—	$	235,902
Liabilities

Derivatives:
Natural gas fixed price forward contracts	$	—	$	—	$	2,574	$	2,574

Embedded EPP derivatives	—		—		5,541		5,541
Interest rate swap agreements	—		15,989		—		15,989



	$	—	$	15,989	$	8,115	$	24,104

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

Interest Rate Swap Agreements - Interest rate swap agreements are valued using quoted prices for similar contracts and are therefore classified as Level 2 financial assets. Interest rate swaps are designed as hedging instruments and are recognized at fair value on our condensed consolidated balance sheets. As of March 31, 2021, we expect $2.2 million of the loss on the interest rate swaps accumulated in other comprehensive loss to be reclassified into earnings in the next 12 months.

Natural Gas Fixed Price Forward Contracts - As of December 31, 2020, 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 and therefore, as no observable inputs to support market activity were available, were classified as Level 3 liabilities. 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. At March 31, 2021, we transferred $1.7 million of natural gas forward contracts from Level 3 to Level 2.

Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria.

We recognized an unrealized gain of $0.2 million and an unrealized loss of $0.6 million, as a result of a change in the fair value of our natural gas fixed price forward contracts during the three months ended March 31, 2021 and 2020, respectively. We realized gains of $0.7 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively, on the settlement of these contracts in cost of revenue on our condensed consolidated statements of operations.

Embedded Escalation Protection Plan Derivative Liability in Sales Contracts - We estimate the fair value of the embedded Escalation Protection Plan ("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 three months ended March 31, 2021 and 2020, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized loss of $0.5 million and an unrealized gain of $0.3 million, respectively, in (loss) gain on revaluation of embedded derivatives on our condensed consolidated statements of operations.

The changes in the Level 3 financial liabilities during the three months ended March 31, 2021 were as follows (in thousands):


	Natural Gas Fixed Price Forward Contracts		Embedded EPP Derivative Liability		Total
Liabilities at December 31, 2019	$	6,968	$	6,176	$	13,144
Settlement of natural gas fixed price forward contracts	(4,503)		—		(4,503)
Changes in fair value	109		(635)		(526)
Liabilities at December 31, 2020	2,574		5,541		8,115
Settlement of natural gas fixed price forward contracts	(731)		—		(731)
Changes in fair value	(193)		519		326
Transfer from Level 3 to Level 2 in fair value hierarchy	(1,650)		—		(1,650)
Liabilities at March 31, 2021	$	—	$	6,060	$	6,060

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 March 31, 2021, using an expected growth rate of 7% over the contracts' life and volatility of 20%. The estimated growth rate and volatility were estimated based on the historical tariff changes for the period 2008 to 2020. 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 quarter 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 is 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 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):


	March 31, 2021				December 31, 2020
	Net Carrying Value		Fair Value		Net Carrying Value		Fair Value

Customer receivables
Customer financing receivables	$	49,395	$	41,039	$	50,746	$	42,679
Debt instruments
Recourse:





10.25% Senior Secured Notes due March 2027	68,703		70,873		68,614		71,831
2.5% Green Convertible Senior Notes due August 2025	221,387		400,009		99,394		426,229
Non-recourse:

7.5% Term Loan due September 2028	30,869		37,044		31,746		37,658

6.07% Senior Secured Notes due March 2030	76,130		85,830		77,007		89,654
LIBOR + 2.5% Term Loan due December 2021	111,410		113,165		114,138		116,113

- 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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