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Fair Value

12 Months Ended

Dec. 31, 2021

Our accounting policy for the fair value measurement of cash equivalents, the fair value of contingent consideration related to business combinations, natural gas fixed price forward contracts, embedded Escalation Protection Plan ("EPP") derivatives and interest rate swap agreements is described in Note 2 - 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, 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 (Note 18)	$	—	$	13,200	$	—	$	13,200

Natural gas fixed price forward contracts	—		—		—		—

Embedded EPP derivatives	—		—		6,461		6,461

	$	—	$	13,200	$	6,461	$	19,661


	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.

Option to acquire a variable number of shares of Class A Common Stock - We estimated the fair value of the Option (as defined in Note 18) to acquire a variable number of shares of Class A Common Stock 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.

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. 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.

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

December 31, 2021

December 31, 2020

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)

—

830

2,574

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, 2021 and 2020, we recognized an unrealized gain of $1.1 million and an unrealized loss of $0.1 million, respectively. We realized gains of $1.5 million and $4.5 million for the years ended December 31, 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, 2021 and 2020, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized loss of $0.9 million and an unrealized gain of $0.6 million, respectively, in (loss) gain on revaluation of embedded derivatives on our consolidated statements of operations.


	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

Changes in fair value	(2,574)		920		(1,654)

Liabilities at December 31, 2021	$	—	$	6,461	$	6,461

The following table presents the unobservable inputs related to the year ended December 31, 2020 Level 3 liabilities:

As of December 31, 2020

Commodity Contracts

Derivative Liabilities

Valuation Technique

Unobservable Input

Units

Range

Average

(in thousands)

($ per Units)

Natural Gas

2,574

Discounted Cash Flow

Forward basis price

MMBTU

$2.82 - $5.03

3.67

The unobservable inputs used in the fair value measurement of the natural gas commodity contracts consist of inputs that are less observable due in part to lack of available broker quotes, supported by little, if any, market activity at the measurement

date or are based on internally developed models. Certain basis prices (i.e., the difference in pricing between two locations) included in the valuation of natural gas contracts were deemed unobservable.

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, 2021 and 2020, 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 2021. 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.

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 consolidated balance sheets. During the fourth quarter of 2021, we terminated our hedges and recognized $10.8 million of interest expense in relation to the terminated hedges in the consolidated statement of operations for the year ended December 31, 2021.

Redeemable Convertible Preferred Stock - RCPS are recorded at fair value upon issuance, net of any issuance costs in accordance with ASC 815-40, Contracts in Entity’s Own Equity. For additional information see Note 18 - SK ecoplant Strategic Investment.

We revalued the Option to purchase Class A common stock to its fair value as of December 31, 2021, and recorded a loss of $3.6 million which is included in other income (expense), net in our consolidated statements of operations. The fair value of the Option is reflected in Accrued expenses and other current liabilities in our consolidated balance sheet.

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

Customer receivables
Customer financing receivables	$	45,269	$	38,334	$	50,746	$	42,679
Debt instruments
Recourse:





10.25% Senior Secured Notes due March 2027	68,968		72,573		68,614		71,831
2.5% Green Convertible Senior Notes due August 2025	222,863		356,822		99,394		426,229
Non-recourse:

7.5% Term Loan due September 2028	29,006		35,669		31,746		37,658

6.07% Senior Secured Notes due March 2030	73,262		83,251		77,007		89,654
3.04% Senior Secured Notes due June 2031	132,631		137,983		—		—
LIBOR + 2.5% Term Loan due December 2021	—		—		114,138		116,113
Redeemable convertible preferred stock, Series A	$	208,551	$	208,551	$	—	$	—

- 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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