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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2018

34.

FAIR VALUE MEASUREMENTS

A hierarchy is established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. As such, fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. The hierarchy is broken down into three levels based on the reliability of inputs as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted price in active markets that are observable either directly or indirectly, or quoted prices in less active markets; and (Level 3) unobservable inputs with respect to which there is little or no market data, which require the Company to develop its own assumptions. Fair value of cash equivalents, restricted cash and restricted short-term investment are categorized as level 1 under the fair value hierarchy, as they based on quoted prices in active markets. Short-term borrowings and long-term borrowing are categorized as level 2 under the fair value hierarchy, as they based on quoted prices in less active markets.

Fair value change in forward contracts, foreign exchange options and call spread

The Company has entered into foreign exchange forward contracts with local banks to reduce the exposure of significant changes in exchange rates between Renminbi and foreign currencies. Authoritative guidance requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets based upon quoted market prices for comparable instruments. The Company's forward contracts have not met the criteria for hedge accounting within authoritative guidance. Therefore, the foreign exchange forward contracts have been recorded at fair value, with the gain or loss on these transactions recorded in the consolidated statements of operations within "Change in fair value of foreign exchange forward contracts" in the period in which they occur. The Company does not use derivative financial instruments for trading or speculative purposes. The Company held foreign exchange forward contracts with a total notional value of

USD139 million as of December 31, 2018. These foreign exchange forward contracts mature within 12 months. The Company used a discounted cash-flow methodology to measure fair value, which requires inputs such as interest yield curves and foreign exchange rates. The significant inputs used in the aforementioned model can be corroborated with market observable data and therefore the fair value measurements are classified as level 2. Typically, any losses or gains on the forward exchange contracts are offset by re-measurement losses or gains on the underlying balances denominated in non-functional currencies. The Company's foreign currency exchange contract is an over-the-counter instrument.

The Group classified the cash flows related to realized gain or loss on settlement of foreign exchange forward contracts as operating activities, which are based on the nature of the cash flows the derivative is economically hedging.

The Company purchased call spread combined option contracts with a total notional value of US$70 million during the year ended December 31, 2015. These foreign exchange call spread mature within 12 months. The Company adopted the Black-Scholes Option Pricing (“B-S”) Model to value the Currency Option Contracts. The B-S Model is widely used and accepted as a common valuation practice in valuing such currency option. The significant inputs used in the aforementioned model are unobservable inputs which there are little or no market data and therefore the fair value measurements are classified as level 3. The Company's foreign currency call spread is an over-the-counter instrument.

The call spread option is asset derivatives which need to be fair valued on day one and marked to market subsequently at each reporting period end. The fair value gain or loss arising from the re-measurement is recognized in the consolidated statements of operations and comprehensive income. The fair value change was a loss of RMB370,437 for the year ended December 31, 2015.

The call spread option matured in the fourth quarter of

2016

and the Company recognised the gain of RMB

4.9

million.

The Company purchased foreign exchange option contracts with a total notional value of US$167 million during the year ended December 31, 2018. These foreign exchange options mature within 12 months. The Company adopted the Black-Scholes Option Pricing (“B-S”) Model to value the foreign exchange options. The significant inputs used in the aforementioned model are unobservable inputs which there are little or no market data and therefore the fair value measurements are classified as level 3.

The foreign exchange option is asset derivatives which need to be fair valued on day one and marked to market subsequently at each reporting period end. The fair value gain or loss arising from the re-measurement is recognised in the consolidated statements of operations and comprehensive income. The fair value change was a loss of RMB9,720,182 for the year ended December 31, 2018.

Convertible Senior Notes and Capped Call Options

The Company has adopted valuation models to assess the fair value for capped call options and the Notes, as the capped call options are not publicly traded and the trading of the Notes is considered inactive. Management is responsible for determining these fair values and assessing a number of factors. Both capped call options and the Notes are valued using the Binominal Tree option pricing model. The valuation involves complex and subjective judgments as well as the Company’s best estimates on the valuation date. Inputs related to the Binomial models for convertible debt fair value are: spot price, conversion price, time to maturity, expected dividend yield, expected share volatility, risk free interest rate, yield-to-maturity and put option exercisable period, of which spot price and expected share volatility are most significant to valuation determination of convertible debt.

Warrants

The Company adopted Binominal Tree option pricing model to assess the warrants’ fair value. Management is responsible for determining the fair value and assessing a number of factors. The valuation involves complex and subjective judgments as well as the Company’s best estimates on the valuation date. Key inputs related to the Binomial Tree option pricing model for the valuation of the fair value of warrants are: probabilities assigned among IPO and non-IPO scenarios, time to maturity, volatility, dividend yield, as well as risk-free rate, of which probabilities assigned among IPO and non-IPO scenarios, volatility, and risk-free rate are most significant to valuation determination of the warrants.

Interest Rate Swap

The Company’s exposure to the risk of changes in market interest rates primarily relates to its bank borrowings. To finance its overseas power station business operation and expansion, the Company’s operating subsidiaries located in Mexico will obtain long-term bank borrowings from local bank, which carries variable interest rates. With an aim to reduce its interest rate exposure, the Company entered into one long-term interest rate swap contract in 2016 to fix the interest rate as a fixed rate payer. The interest rate swap is a derivative which needs to be fair valued at each reporting period end. The fair value gain or loss arising from the remeasurement is recognized in the consolidated statements of operations and comprehensive income. As of December 31, 2017 and 2018, the fair value of the interest rate swap was RMB26,486,388 and

RMB12,786,001,

respectively, which was recorded as a derivative liability. The fair value change was a loss of

RMB16,122,313 and gain of RMB

13,700,387

for the year ended December 31, 2017 and 2018, respectively.

Guarantee liability

A guarantee liability is initially recognized at the estimated fair value in the Group’s consolidated balance sheets unless it becomes probable that the Group will reimburse the holder of the guarantee for an amount higher than the carrying amount, in which case the guarantee is carried in the Group’s consolidated balance sheets at the expected amount payable to the holder. The fair value of the guarantee liability is measured by the total consideration to be received in connection with the provision of guarantee. The guarantee liability would be amortized in straight line during the guarantee period.

Recurring change in fair value

As of December 31, 2016, 2017 and 2018, information about the hierarchy of the fair value measurements for the Company's assets and liabilities that are measured at fair value on a recurring basis subsequent to their initial recognition is as follows:

	Fair Value Measurements at Reporting Date Using
Description	Balance as of December 31, 2016		Quote prices in active market for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Foreign exchange forward contracts- receivable		640,876		-		640,876		-

Liabilities:
Convertible senior notes		423,739,708		-		-		423,739,708
Guarantee liabilities		226,086,556		-		-		226,086,556
Interest rate swap		10,364,075		-		-		10,364,075

	Fair Value Measurements at Reporting Date Using
Description	Balance as of December 31, 2017		Quote prices in active market for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Guarantee receivables		174,882,132		-		-		174,882,132

Liabilities:
Foreign exchange forward contracts- payable		4,520,619		-		4,520,619
Convertible senior notes		65,342		-		-		65,342
Guarantee liabilities		148,187,615		-		-		148,187,615
Interest rate swap		26,486,388		-		-		26,486,388

	Fair Value Measurements at Reporting Date Using
Description	Balance as of December 31, 2018		Quote prices in active market for identical assets (Level 1)	Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Guarantee receivables		197,431,047					197,431,047
Foreign exchange forward contracts- receivable		1,192,168			1,192,168
Foreign exchange options		846,718					846,718

Liabilities:
Convertible senior notes		68,632					68,632
Guarantee liabilities		92,404,068					92,404,068
Foreign exchange forward contracts- payable		9,463,728			9,463,728
Interest rate swap		12,786,001					12,786,001

Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3 valuation)

A summary of changes in Level 3 fair value of convertible senior notes for the year ended December 31, 2016, 2017 and 2018 were as follows:

	For the year ended December 31,
	2016			2017			2018
	RMB			RMB			RMB
Balance at January 1,		1,506,981,361			423,739,708			65,342
Foreign exchange (gain)/loss		43,448,795			(845,071	)		3,290
Change in fair value of convertible senior notes		92,015,957			-			-
Repurchase of convertible senior notes		(1,218,706,405	)		(422,829,295	)		-
Balance at December 31,		423,739,708			65,342			68,632

A summary of changes in Level 3 fair value of capped call options for the year ended December 31, 2016, 2017 and 2018 were as follows:

	For the year ended December 31,
	2016			2017		2018
	RMB			RMB		RMB
Balance at January 1,		17,490,323			-		-
Foreign exchange (gain)/loss		736,212			-		-
Change in fair value of capped call options		(18,226,535	)		-		-
Balance at December 31,		-			-		-

The capped call options were expired upon the full repurchase of 2016 Notes in 2016 (note 27).

A summary of changes in Level 3 fair value of foreign exchange options for the year ended December 31, 2016, 2017 and 2018 were as follows:

	For the year ended December 31,
	2016		2017		2018
	RMB		RMB		RMB
Balance at January 1,		-		-		-
Purchase of foreign exchange options		-		-		10,566,900
Change in fair value of foreign exchange options		-		-		(9,720,182	)
Balance at December 31,		-		-		846,718

A summary of changes in Level 3 fair value of call spread options for the year ended December 31, 2016, 2017 and 2018 were as follows:

	For the year ended December 31,
	2016			2017		2018
	RMB			RMB		RMB
Balance at January 1,		7,277,406			-		-
Purchase of call spread option		4,761,603			-		-
Exercise of call spread options		(12,039,009	)		-		-
Balance at December 31,		-			-		-

A summary of changes in Level 3 fair value of warrant liability for the year ended December 31, 2016, 2017 and 2018 were as follows:

	For the year ended December 31,
	2016			2017		2018
	RMB			RMB		RMB
Balance at January 1,		68,377,608			-		-
Exchange loss on warrant liability		2,256,314			-		-
Change in fair value of warrant liability		(34,937,341	)		-		-
Repurchase of warrant liability		(35,696,581	)		-		-
Balance at December 31,		-			-		-

A summary of changes in Level 3 fair value of rate swap derivative for the year ended December 31, 2016, 2017 and 2018 were as follows:

	For the year ended December 31,
	2016		2017		2018
	RMB		RMB		RMB
Balance at January 1,		-		10,364,075		26,486,388
Change in fair value of interest rate swap		10,364,075		16,122,313		(9,701,051	)
Cash settlement		-		-		(3,999,336	)
Balance at December 31,		10,364,075		26,486,388		12,786,001

A summary of changes in Level 3 fair value of guarantee liabilities for the year ended December 31, 2016, 2017 and 2018 were as follows:

	For the year ended December 31,
	2016			2017			2018
	RMB			RMB			RMB
Balance at January 1,		-			226,086,556			148,187,615
Additions		235,728,241			5,122,691			1,425,026
Amortization		(9,641,685	)		(47,292,776	)		(28,243,063	)
Cancellation		-			(35,728,856	)		(28,965,510	)
Balance at December 31,		226,086,556			148,187,615			92,404,068

Change in fair value of derivatives

The Change in fair value of derivatives recognized in earnings was as follows:

	Foreign exchange forward						Type of derivatives
																	Foreign
For the year ended	contracts						Call spread		Interest			Capped call			Warrant		exchange
December 31,	Realized			Unrealized			options		Rate swap			options			liability		options			Total
(In RMB)
2016		(53,202,660	)		640,876					(10,364,075	)		(18,226,535	)		34,937,341					(46,215,053	)
2017		(3,690,785	)		(4,520,619	)		-		(16,122,313	)					-					(24,333,717	)
2018		(42,614,340	)		(1,475,360	)		-		9,701,051			-			-		(9,720,182	)		(44,108,831	)

Non-recurring change in fair value

As of December 31, 2016

Fair Value Measurements at Reporting Date Using

Description

Balance as of

December 31,

2016

Quote Prices

in active

market for

identical

assets (Level 1)

Significant

other

observable

input (Level 2)

Significant

unobservable

input (Leval 3)

Total

(losses)

RMB

Property, plant and equipment, net

4,738,681,353

125,524,021

As of December 31, 2018

Fair Value Measurements at Reporting Date Using

Description

Balance as of

December 31,

2018

Quote Prices

in active

market for

identical

assets (Level 1)

Significant

other

observable

input (Level 2)

Significant

unobservable

input (Leval 3)

Total

(losses)

RMB

Property, plant and equipment, net

8,275,899,684

14,548,043

In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC 360-10, long-lived assets held and used with a carrying amount of RMB125,524,021, nil and RMB14,548,043 as of December 31, 2016, 2017 and 2018 were written down to their fair value of zero, resulting in an impairment charge of RMB125,524,021 and nil and RMB14,548,043 for the year ended December 31, 2016, 2017 and 2018, respectively, which was calculated based on Level 3 Inputs and included in earnings for the respective years.

- 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.

+ References + Details