Derivative Financial Instruments

3 Months Ended

Mar. 31, 2022

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 $16.2 million as of March 31, 2022. We recorded a loss of $3.0 million in other income (expense), net in our condensed consolidated statements of operations. The fair value of the Option is reflected in accrued expenses and other current liabilities in our condensed 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. In July 2015, PPA V entered into interest rate swap agreements to convert a variable interest rate debt to a fixed rate. During 2021, the variable rate debts were refinanced into fixed rate debt and the notational amount as the swaps were settled.

Cash Flow Hedges

As of December 31, 2021, we had settled our derivative contracts designated as cash flow hedges. 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 during the three months ended March 31, 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Beginning balance	$	—	$	15,989
Loss (gain) recognized in other comprehensive loss	—		(4,164)
Amounts reclassified from other comprehensive loss to earnings	—		(489)
Net loss (gain) recognized in other comprehensive loss	—		(4,653)
Gain recognized in earnings	—		(35)
Ending balance	$	—	$	11,301

Embedded EPP Derivatives in Sales Contracts

We 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 three months ended March 31, 2022 and 2021, we recorded the fair value of the embedded EPP derivatives and recognized an unrealized gain of $0.5 million and an unrealized loss of $0.5 million, respectively. These gains and losses are included within loss on revaluation of embedded derivatives in the condensed consolidated statements of operations. The fair value of these derivatives was $5.9 million and $6.0 million as of March 31, 2022 and 2021, respectively.