Project Assets

12 Months Ended

Oct. 31, 2021

Project Assets

Project Assets

Note 7. Project Assets

Project assets as of October 31, 2021 and 2020 consisted of the following (in thousands):

	October 31,		October 31,		Estimated
	2021		2020		Useful Life
Project Assets - Operating	$	116,286	$	99,351	5-20 years
Accumulated depreciation		(19,844)		(28,818)
Project Assets - Operating, net		96,442		70,533
Project Assets - Construction in progress		126,835		91,276	7-20 years
Project Assets, net	$	223,277	$	161,809

The estimated useful lives of these project assets are 20 years for BOP and site construction, and 4 to 7 years for modules. The Bridgeport Fuel Cell Project is being depreciated based on similar useful lives adjusted for time elapsed prior to the acquisition. Project assets as of October 31, 2021 and 2020 included nine and eight, respectively, completed, commissioned installations generating power with respect to which the Company has a PPA with the end-user of power and site host with a net aggregate value of $96.4 million and $70.5 million as of October 31, 2021 and 2020, respectively. Certain of these assets are the subject of sale-leaseback arrangements with PNC and Crestmark.

Project assets as of October 31, 2021 and 2020 also include installations with carrying values of $126.8 million and $91.3 million, respectively, which are being developed and constructed by the Company in connection with projects for which we have entered into PPAs or projects for which we expect to secure PPAs or otherwise recover the asset value and which have not yet been placed in service. Of this total, as of October 31, 2021 and 2020, approximately $0 million and $4.8 million, respectively, relates to projects for which we expect to secure long-term contracts and/or otherwise recover the asset value and which have not yet been placed in service.

In July 2020, the Company repurchased the equipment leased by the Company’s subsidiary, UCI Fuel Cell, LLC, from PNC for a purchase price of $8.8 million and terminated the lease agreement. Refer to Note 14. “Debt and Financing Obligations” for more information.

Fiscal Year 2021 Impairment Charges

In the fourth quarter of fiscal year 2021, the Company recorded project asset impairment charges for (i) the Triangle Street Project, (ii) the LIPA Brookhaven and Clare Rose Projects, and (iii) the Toyota Project, which are further described as follows:

i. Impairment charge for the Triangle Street Project:  In the fourth quarter of fiscal year 2021, based upon the carrying value of the components that can be removed and utilized to service similar project assets and due to the uncertainty as to whether the project asset will generate further cash flows, the Company recorded an impairment charge of $0.4 million. The remaining carrying value is $5.6 million.

ii. Impairment charge for the LIPA Brookhaven and Clare Rose Projects:  As previously reported, in July 2017, the Company was awarded three projects on Long Island, New York totaling 39.8 MW by the Long Island Power Authority (“LIPA”). In December 2018, the Company executed a power purchase agreement for one of the three awards (a 7.4 MW project in Yaphank, Long Island). The other two awards, for which there are no executed power purchase agreements (and which are referred to herein as the LIPA Brookhaven and Clare Rose Projects), had been progressing through the required interconnect process while the Company worked to find a commercial resolution and enter into such agreements with LIPA. Given the passage of time without a resolution, the Company has made a decision to no longer pursue the

interconnection process and will no longer pursue development of the LIPA Brookhaven and Clare Rose Projects. As a result of this decision, in the fourth quarter of fiscal year 2021, the Company recorded a charge of $1.8 million to impair the carrying value of the development costs for these two projects.

iii. Impairment charge for the Toyota Project:  The Company is in the construction phase of this 2.3 MW project. It was determined in the fourth quarter of fiscal year 2021 that a potential source of renewable natural gas (“RNG”) at favorable pricing was no longer sufficiently probable and that market pricing for RNG has significantly increased resulting in the determination that the carrying value of the project asset is no longer recoverable.  While the Company is pursuing alternative sources of RNG, a $2.8 million charge was recorded which represents the carrying value of the project asset less the carrying value of inventory components that could be redeployed for alternative use. Refer to Note 22. “Commitments and Contingencies” for more information regarding fuel risk exposure.

Fiscal Year 2020 Impairment Charges

In the fourth quarter of fiscal year 2020, the Company reviewed the Triangle Street Project and, as a result of output and revenue projections given then-current development plans, recorded an additional impairment charge of $2.4 million. The Triangle Street Project is used by the Company as a development platform for the Company’s advanced applications. Because we use the platform for development activities, generation revenue has been negatively impacted.

Fiscal Year 2019 Impairment Charges

During the year ended October 31, 2019, the Company recorded project asset impairment charges for (i) the Triangle Street Project and (ii) the Bolthouse Farms Project, which are further described as follows:

i. Impairment charge for the Triangle Street Project:  In the fourth quarter of fiscal year 2019, management determined that it would not be able to secure a PPA with terms acceptable to the Company for the Triangle Street Project. Therefore, it was management’s intention in fiscal year 2019 to operate the project under a merchant model for 5 years and use the project as a development platform for the Company’s advanced applications. The project sells power through the Connecticut grid under wholesale tariff rates and Renewable Energy Credits (RECs) to market participants. As a result of management’s decision to operate the project in this manner, an impairment charge of $14.4 million was recorded in the fourth quarter of fiscal year 2019. The amount of the impairment charge was determined by comparing the estimated discounted cash flows of the project and the expected residual value of the project to its carrying value.

ii. Impairment charge for the Bolthouse Farms Project:  In the fourth quarter of fiscal year 2019, an impairment charge for the Bolthouse Farms Project was recorded as management decided to pursue termination of the PPA given regulatory changes impacting the future cost profile for the Company and Bolthouse Farms. Since it was considered probable that the PPA would be terminated, a $3.1 million impairment charge was recorded, which reflects the difference between the carrying value of the asset and the value of the components that were expected to be redeployed to other projects. As of October 31, 2019, the PPA was terminated.

Impairment charges are recorded as cost of generation revenues in the Consolidated Statements of Operations and Comprehensive Loss.

Depreciation expense for project assets was $13.7 million, $12.9 million and $6.8 million for the years ended October 31, 2021, 2020 and 2019, respectively.

Project construction costs incurred for long-term project assets are reported as investing activities in the Consolidated Statements of Cash Flows. The proceeds received from the sale and subsequent leaseback of project assets are classified as “Cash flows from financing activities” within the Consolidated Statements of Cash Flows and are classified as a financing obligation within “Current portion of long-term debt” and “Long-term debt and other liabilities” on the Consolidated Balance Sheets (refer to Note 14. “Debt and Financing Obligations” for more information).