Derivative Financial Instruments

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Option to acquire a variable number of shares of Class A Common Stock (Note 18)

In December 2021, we provided SK ecoplant with an option to acquire a variable number of shares of Class A Common Stock (the “Option”). We concluded that the Option is a freestanding financial instrument that should be separately recorded at fair value on the date the SPA was executed. We determined the fair value of the Option on that date to be $9.6 million. We revalued the Option to its fair value of $13.2 million 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. For additional information, see Note 18 - SK ecoplant Strategic Investment.

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 December 31, 2021 and December 31, 2020 on our consolidated balance sheets are as follows (in thousands):


	December 31,
	2021		2020





Liabilities

Accrued expenses and other current liabilities	$	—	$	15,989

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 were to mature on December 31, 2021 and the remaining three were to mature on June 30, 2031. The effective change is recorded in accumulated other comprehensive loss and is recognized as interest expense on settlement. The notional amounts of the swaps are none and $181.4 million as of December 31, 2021 and December 31, 2020, respectively. During 2021, the variable rate debts were refinanced into fixed rate debt and there was no notational amount as the swaps were settled.

We measured 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 years ended December 31, 2021 and 2020, and these gains are included in other expense, net, in the consolidated statements of operations. Upon settlement of the interest rate swaps in November 2021, we paid $11.5 million in breakage fees to terminate the interest rate swap contracts, and we recognized interest expense of $10.9 million on interest rate swaps settlements in our 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 are as follows (in thousands):


	Years Ended December 31,
		2021		2020
Beginning balance		$	15,989	$	9,238
Loss (gain) recognized in other comprehensive loss		(2,714)		8,465
Amounts reclassified from other comprehensive loss to earnings		(12,529)		(1,569)
Net loss (gain) recognized in other comprehensive loss		(15,243)		6,896
Gain recognized in earnings		(746)		(145)
Ending balance		$	—	$	15,989

Embedded EPP Derivatives in Sales ContractsWe estimate the fair value of the embedded EPP derivatives in certain of the contracts with our customers 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. 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. These gains and losses are included within loss on revaluation of embedded derivatives in the consolidated statements of operations. The fair value of these derivatives was $6.5 million and $5.5 million as of December 31, 2021 and 2020, respectively.