Pass-Through Financing Obligation

12 Months Ended

Dec. 31, 2024

Leases [Abstract]

Pass-Through Financing Obligation

Pass-Through Financing Obligation

The Company's pass-through financing obligation ("Financing Obligation") arises when the Company leases solar energy systems to Fund investors who are considered commercial customers under a master lease agreement, and these investors in turn are assigned the Customer Agreements with customers. The Company receives all of the value attributable to the accelerated tax depreciation and some or all of the value attributable to the other incentives. Given the assignment of operating cash flows, this arrangement is accounted for as a Financing Obligation. The Company also sells the rights and related value attributable to the Commercial ITC to these investors.

Under the Financing Obligation arrangement, a wholly owned subsidiary of the Company finances the cost of solar energy systems with investors for an initial term of seven years. The solar energy systems are subject to Customer Agreements with an initial term of typically 20 years that automatically renew annually or for five years. These solar energy systems are reported under the line item solar energy systems, net in the consolidated balance sheets. As of December 31, 2023, the cost of the solar energy systems placed in service under the Financing Obligation arrangement was $692.3 million. The accumulated depreciation related to these assets as of December 31, 2023 was $191.5 million. During the year ended December 31, 2024, the Company retired all five of its remaining Financing Obligation arrangements and terminated the associated leases for $240.3 million, which resulted in a gain on debt extinguishment of $50.6 million.

The investors make a series of large up-front payments and, subsequent smaller quarterly payments (lease payments) to the subsidiary of the Company. The Company accounts for the payments received from the investors under the Financing Obligation arrangement as borrowings by recording the proceeds received as a Financing Obligation on its consolidated balance sheets, and cash provided by financing activities in its consolidated statements of cash flows. This Financing Obligation is reduced over a period of approximately 7 years by customer payments under the Customer Agreements. In addition, funds paid for the Commercial ITC value upfront are initially recorded as a refund liability and recognized as revenue as the associated solar energy system reaches PTO. The Commercial ITC value, if any, is reflected in cash provided by operations on the consolidated statements of cash flows. The Company accounts for the Customer Agreements consistent with the Company’s revenue recognition accounting policies as described in Note 2, Summary of Significant Accounting Policies.

Interest is calculated on the financing obligation using the effective interest rate method. The effective interest rate, which is adjusted on a prospective basis, is the interest rate that equates the present value of the estimated cash amounts to be received by the investor over the lease term with the present value of the cash amounts paid by the investor to the Company, adjusted for amounts received by the investor. The Financing Obligation is nonrecourse once the associated assets have been placed in service and all the contractual arrangements have been assigned to the investor.

Under the Financing Obligation, the investor has a right to extend its right to receive cash flows from the customers beyond the initial term in certain circumstances.

Under the Financing Obligation, the Company is responsible for services such as warranty support, accounting, lease servicing and performance reporting to customers. As part of the warranty and performance guarantee with the customers in applicable Funds, the Company guarantees certain specified minimum annual solar energy production output for the solar energy systems leased to the customers, which the Company accounts for as disclosed in Note 2, Summary of Significant Accounting Policies.