SUNNOVA ENERGY INTERNATIONAL INC. Management report and analysis of the financial situation and operating results. (Form 10-K)

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The following discussion and analysis contain forward-looking statements that
are subject to risks, uncertainties and assumptions. Our actual results and
timing of selected events may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including but not
limited to those discussed under "Special Note Regarding Forward-Looking
Statements", "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Moreover, we operate in a very competitive and rapidly changing environment and
new risks emerge from time to time. It is not possible for our management to
predict all risks, nor can we assess the impact of all factors on our business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this Annual Report on
Form 10-K may not occur and actual results could differ materially and adversely
from those anticipated or implied in the forward-looking statements.

Company presentation


We are a leading residential energy service provider, serving over 195,000
customers in more than 25 U.S. states and territories. Our goal is to be the
source of clean, affordable and reliable energy with a simple mission: to power
energy independence so homeowners have the freedom to live life uninterrupted.
We were founded to deliver customers a better energy service at a better price;
and, through our energy service offerings, we are disrupting the traditional
energy landscape and the way the 21st century customer generates and consumes
electricity.

We have a differentiated residential solar dealer model in which we partner with
local dealers who originate, design and install our customers' solar energy
systems and energy storage systems on our behalf. Our focus on our dealer model
enables us to leverage our dealers' specialized knowledge, connections and
experience in local markets to drive customer origination while providing our
dealers with access to high quality products at competitive prices, as well as
technical oversight and expertise. We believe this structure provides
operational flexibility, reduces exposure to labor shortages and lowers fixed
costs relative to our peers, furthering our competitive advantage.

We offer customers products to power their homes with affordable solar energy.
We are able to offer savings compared to utility-based retail rates with little
to no up-front expense to the customer in conjunction with solar and solar plus
energy storage, and in the case of the latter are able to also provide energy
resiliency. Our solar service agreements typically take the form of a lease, PPA
or loan; however, we also offer service plans for systems previously originated
by our competitors. We make it possible in some states for a customer to obtain
a new roof and other ancillary products as part of their solar loan. We also
allow customers originated through our homebuilder channel the option of
purchasing the system when the customer closes on the purchase of a new home.
The initial term of our solar service agreements is typically between 10 and 25
years. Service is an integral part of our agreements and includes operations and
maintenance, monitoring, repairs and replacements, equipment upgrades, on-site
power optimization for the customer (for both supply and demand), the ability to
efficiently switch power sources among the solar panel, grid and energy storage
system, as appropriate, and diagnostics. During the life of the contract, we
have the opportunity to integrate related and evolving home servicing and
monitoring technologies to upgrade the flexibility and reduce the cost of our
customers' energy supply.

In the case of leases and PPAs, we also currently receive tax benefits and other
incentives from federal, state and local governments, a portion of which we
finance through tax equity, non-recourse debt structures and hedging
arrangements in order to fund our upfront costs, overhead and growth
investments. We have an established track record of attracting capital from
diverse sources. From our inception through December 31, 2021, we have raised
more than $9.0 billion in total capital commitments from equity, debt and tax
equity investors.

In addition to providing ongoing service as a standard component of our solar
service agreements, we also offer ongoing energy services to customers who
purchased their solar energy system through third parties. Under these
arrangements, we agree to provide monitoring, maintenance and repair services to
these customers for the life of the service contract they sign with us. We
intend to expand our offerings to include complimentary products to our
agreements as well as non-solar financing. Specifically, and subject to
obtaining any applicable state and federal regulatory approvals and assessing
any attendant risks, we plan to expand our offerings to include a non-solar loan
program enabling customers to finance the purchase of products independent of a
solar energy system or energy storage system. We believe the quality and scope
of our comprehensive energy service offerings, whether to customers that
obtained their solar energy system through us or through another party, is a key
differentiator between us and our competitors.

In April 2021, we acquired SunStreet, Lennar's residential solar platform that
focuses primarily on solar energy systems and energy storage systems for
homebuilders. In connection with that acquisition, we entered into an agreement
pursuant to
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which we would be the exclusive residential solar and storage provider for
Lennar's new home communities with solar across the U.S. for a period of four
years. We believe the acquisition provides a new strategic path to further scale
our residential solar business, reduces customer acquisition costs, provides a
multi-year supply of homesites through the development of new home solar
communities and allows us to pursue the development of clean and resilient
residential microgrids across the U.S.

We also enter into leases with third-party owners of pools of solar energy
systems to receive such third party's interest in those systems. In connection
therewith, we assume the related customer PPA and lease obligations, entitling
us to future customer cash flows as well as certain credits, rebates and
incentives (including SRECs) under those agreements, in exchange for a lease
payment, whether upfront or over time, to the third-party owner, which may be
made in the form of cash or shares of our common stock. We believe such
arrangements enhance our long-term contracted cash flows and are complementary
to our overall business model.

We commenced operations in January 2013 and began providing solar energy
services under our first solar energy system in April 2013. Since then, our
brand, innovation and focused execution have driven significant, rapid growth in
our market share and in the number of customers on our platform. We operate one
of the largest fleets of residential solar energy systems in the U.S.,
comprising more than 1,140 megawatts of generation capacity and serving over
195,000 customers.

Recent Developments

Acquisition of SunStreet

In February 2021, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with certain of our subsidiaries, SunStreet and LEN X, LLC, a
Florida limited liability company, the sole member of SunStreet and a
wholly-owned subsidiary of Lennar ("Lenx"). Pursuant to the Merger Agreement, in
April 2021, we acquired SunStreet, Lennar's residential solar platform, in
exchange for up to 7,011,751 shares of our common stock (the "Acquisition"),
comprised of 3,095,329 shares in initial consideration issued at closing, 27,526
shares related to the purchase price adjustments in the third quarter of 2021
and up to 3,888,896 shares issuable as earnout consideration after closing of
the Acquisition as described below. In connection with the Acquisition, we
entered into an agreement pursuant to which we would be the exclusive
residential solar and storage service provider for Lennar's new home communities
with solar across the U.S. for a period of four years.

Remuneration agreement


Pursuant to the Earnout Agreement entered into between us and Lenx, Lenx will
have the ability to earn up to an additional 3,888,896 shares of common stock
over a five-year period in connection with the Acquisition. The earnout payments
are conditioned on SunStreet meeting certain commercial milestones and achieving
specified in-service levels. There are two elements to the earnout arrangement.
First, we will issue up to 2,777,784 shares to the extent we and our
subsidiaries (including SunStreet) place target amounts of solar energy systems
into service and enter into qualifying customer agreements related to such solar
energy systems. The 2,777,784 shares of common stock issuable under this portion
of the earnout can be earned in four installments on a yearly basis (if the
in-service target for each such year is achieved) or at the end of the four-year
period (if the cumulative in-service target is achieved by the fourth and final
year), with the annual periods commencing on the closing date of the
Acquisition. The second element of the earnout is related to the development of
microgrid communities. Pursuant to this portion of the earnout, we will issue up
to 1,111,112 shares if, prior to the fifth anniversary of the closing date of
the Acquisition, we enter into binding agreements for the development of
microgrid communities.

Tax fairness commitment


In connection with the Acquisition, Lennar has committed to contribute an
aggregate $200.0 million (the "Funding Commitment") to four Sunnova tax equity
funds, each formed annually during a period of four consecutive years (each such
year, a "Contribution Year") commencing in 2021. The solar service agreements
and related solar energy systems acquired by each of these four tax equity funds
will generally be originated by SunStreet, though a certain number of solar
service agreements may be originated by our dealers, subject to certain criteria
and expected in-service levels for the year. Any amount not utilized during the
first and second Contribution Years will increase the Funding Commitment during
the third and fourth Contribution Year by that amount. Any amount not utilized
during the third Contribution Year will increase the Funding Commitment during
the fourth Contribution Year by that amount. In connection with the Funding
Commitment, each of the tax equity funds will enter into typical tax equity fund
transaction documentation, including development and purchase agreements,
servicing agreements and limited liability company agreements. See "-Liquidity
and Capital Resources-Financing Arrangements-Tax Equity Fund Commitments" below.

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Investments in Solar Receivables

In November 2021, one of our wholly-owned subsidiaries entered into a Master
Lease Agreement with Energy Asset HoldCo LLC, a Delaware limited liability
company and subsidiary of Lennar, to lease two pools of solar energy systems and
assume the related PPA and lease obligations from EAH Lessor. In exchange for
the right to receive future customer cash flows as well as certain credits,
rebates and incentives (including SRECs) under those pooled agreements, we made
an upfront payment to Lennar consisting of $35.0 million in cash and 1,027,409
shares of our common stock for net consideration of $79.4 million. Pursuant to
the terms of the EAH Master Lease, additional pools of solar energy systems may
also be leased from EAH Lessor in the future in exchange for upfront lease
payments.

Ancillary loans


In November 2021, we began offering an accessory loan for services sold
independent of a solar energy system or energy storage system. Accessory loans
allow consumers to finance solutions, including home generators, roofing,
electric vehicle chargers, home security systems and other offerings we may make
available in the future.

COVID-19 Pandemic

The ongoing COVID-19 pandemic has caused and may continue to have widespread negative effects on the global economy. We experienced resultant disruptions to our business operations as the COVID-19 virus continued to circulate across states and we territories in which we operate.


Social distancing guidelines, stay-at-home orders and similar government
measures associated with the COVID-19 pandemic, as well as actions by
individuals to reduce their potential exposure to the virus, contributed to a
decline in origination. This decline reflected an inability by our dealers to
perform in-person sales calls based on the stay-at-home orders in some
locations. To adjust to these government measures, our dealers expanded the use
of digital tools and origination channels and created new methods that offset
restrictions on their ability to meet with potential new customers in person.
Such efforts drove an increase in new contract origination. We have seen the use
of websites, video conferencing and other virtual tools as part of our
origination process expand widely and contribute to our growth.

Throughout the COVID-19 pandemic, we have continued to service and install solar
energy systems. The industry is currently facing shortages and shipping delays
affecting the supply of energy storage systems, modules and component parts for
inverters and racking used in solar energy systems. These shortages and delays
can be attributed in part to the COVID-19 pandemic as well as to government
action in response to the pandemic, as well as to allegations regarding the use
of forced labor in the Chinese polysilicon supply chain. While a majority of our
dealers have secured sufficient quantities to permit them to continue installing
and conducting repairs through much of 2022, if these shortages and delays
persist, they could impact the timing of when solar energy systems and energy
storage systems can be installed and repaired and when we can acquire and begin
to generate revenue from those systems. In addition, if supply chains become
significantly disrupted due to additional outbreaks of the COVID-19 virus or
otherwise, or more stringent health and safety guidelines are implemented, our
ability to install and service solar energy systems could become adversely
impacted.

We cannot predict the full impact the COVID-19 pandemic will have on our
business, cash flows, liquidity, financial condition and results of operations
at this time due to numerous uncertainties. We will continue to monitor
developments affecting our workforce, our customers and our business operations
generally, and will take actions we determine are necessary in order to mitigate
these impacts. For additional discussion regarding risks associated with the
COVID-19 pandemic, see "Risk Factors" elsewhere in this Annual Report on Form
10-K.

Financing Transactions

In October 2021, we admitted a tax equity investor with a total capital
commitment of approximately $11.6 million. In December 2021, we admitted a tax
equity investor with a total capital commitment of approximately $50.0 million.
In February 2022, we admitted a tax equity investor with a total capital
commitment of approximately $150.0 million. See "-Liquidity and Capital
Resources-Financing Arrangements-Tax Equity Fund Commitments" below.

In October 2021, we amended the revolving credit facility associated with one of
our financing subsidiaries that owns certain tax equity funds to, among other
things, update the LIBOR transition terms and transfer a portion of the loan
commitment to an additional lender. See "-Liquidity and Capital
Resources-Financing Arrangements-Warehouse and Other Debt Financings" below.

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In October 2021, one of our subsidiaries issued $68.4 million in aggregate
principal amount of Series 2021-C Class A solar loan-backed notes, $55.9 million
in aggregate principal amount of Series 2021-C Class B solar loan-backed notes
and $31.5 million in aggregate principal amount of Series 2021-C Class C solar
loan-backed notes (collectively, the "HELVII Notes") with a maturity date of
October 2048. The HELVII Notes bear interest at an annual rate of 2.03%, 2.33%
and 2.63% for the Class A, Class B and Class C notes, respectively. In February
2022, one of our subsidiaries entered into a Note Purchase Agreement related to
the sale of $131.9 million in aggregate principal amount of Series 2022-A Class
A solar loan-backed notes, $102.2 million in aggregate principal amount of
Series 2022-A Class B solar loan-backed notes and $63.8 million in aggregate
principal amount of Series 2022-A Class C solar loan-backed notes (collectively,
the "HELVIII Notes") with a maturity date of February 2049. The HELVIII Notes
will bear interest at an annual rate of 2.79%, 3.13% and 3.53% for the Class A,
Class B and Class C notes, respectively. The transaction is expected to close on
or about February 24, 2022, subject to customary closing conditions. See
"-Liquidity and Capital Resources-Financing Arrangements-Securitizations" below.

Securitizations


As a source of long-term financing, we securitize qualifying solar energy
systems, energy storage systems and related solar service agreements into
special purpose entities who issue solar asset-backed and solar loan-backed
notes to institutional investors. We also securitize the cash flows generated by
the membership interests in certain of our indirect, wholly-owned subsidiaries
that are the managing member of a tax equity fund that owns a pool of solar
energy systems, energy storage systems and related solar service agreements that
were originated by one of our wholly-owned subsidiaries. We do not securitize
the Section 48(a) ITC incentives associated with the solar energy systems and
energy storage systems as part of these arrangements. We use the cash flows
these solar energy systems and energy storage systems generate to service the
monthly, quarterly or semi-annual principal and interest payments on the notes
and satisfy the expenses and reserve requirements of the special purpose
entities, with any remaining cash distributed to their sole members, who are
typically our indirect wholly-owned subsidiaries. In connection with these
securitizations, certain of our affiliates receive a fee for managing and
servicing the solar energy systems and energy storage systems pursuant to
management, servicing, facility administration and asset management agreements.
The special purpose entities are also typically required to maintain a liquidity
reserve account and a reserve account for equipment replacements and, in certain
cases, reserve accounts for financing fund purchase option/withdrawal right
exercises or storage system replacement for the benefit of the holders under the
applicable series of notes, each of which are funded from initial deposits or
cash flows to the levels specified therein. The creditors of these special
purpose entities have no recourse to our other assets except as expressly set
forth in the terms of the notes. From our inception through December 31, 2021,
we have issued $2.5 billion in solar asset-backed and solar loan-backed notes.

Tax Fairness Fund


Our ability to offer long-term solar service agreements depends in part on our
ability to finance the installation of the solar energy systems and energy
storage systems by co-investing with tax equity investors, such as large banks
who value the resulting customer receivables and Section 48(a) ITCs, accelerated
tax depreciation and other incentives related to the solar energy systems and
energy storage systems, primarily through structured investments known as "tax
equity". Tax equity investments are generally structured as non-recourse project
financings known as "tax equity funds". In the context of distributed generation
solar energy, tax equity investors make contributions upfront or in stages based
on milestones in exchange for a share of the tax attributes and cash flows
emanating from an underlying portfolio of solar energy systems and energy
storage systems. In these tax equity funds, the U.S. federal tax attributes
offset taxes that otherwise would have been payable on the investors' other
operations. The terms and conditions of each tax equity fund vary significantly
by investor and by fund. We continue to negotiate with potential investors to
create additional tax equity funds.

In general, our tax equity funds are structured using the "partnership flip"
structure. Under partnership flip structures, we and our tax equity investors
contribute cash into a partnership. The partnership uses this cash to acquire
long-term solar service agreements, solar energy systems and energy storage
systems developed by us and sells energy from such solar energy systems and
energy storage systems, as applicable, to customers or directly leases the solar
energy systems and energy storage systems, as applicable, to customers. We
assign these solar service agreements, solar energy systems, energy storage
systems and related incentives to our tax equity funds in accordance with the
criteria of the specific funds. Upon such assignment and the satisfaction of
certain conditions precedent, we are able to draw down on the tax equity fund
commitments. The conditions precedent to funding vary across our tax equity
funds but generally require that we have entered into a solar service agreement
with the customer, the customer meets certain credit criteria, the solar energy
system is expected to be eligible for the Section 48(a) ITC, we have a recent
appraisal from an independent appraiser establishing the fair market value of
the solar energy system and the property is in an approved state or territory.
Certain tax equity investors agree to receive a minimum target rate of return,
typically on an after-tax basis, which varies by tax equity fund. Prior to
receiving a contractual rate of return or a date specified in the contractual
arrangements, the tax equity investor receives substantially all of the non-cash
value attributable to the solar energy systems and energy storage systems, which
includes accelerated depreciation and Section 48(a) ITCs; however,
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we typically receive a majority of the cash distributions, which are typically
paid quarterly. After the tax equity investor receives its contractual rate of
return or after a specified date, we receive substantially all of the cash and
tax allocations.

We have determined we are the primary beneficiary in these tax equity funds for
accounting purposes. Accordingly, we consolidate the assets and liabilities and
operating results of these partnerships in our consolidated financial
statements. We recognize the tax equity investors' share of the net assets of
the tax equity funds as redeemable noncontrolling interests and noncontrolling
interests in our consolidated balance sheets. The income or loss allocations
reflected in our consolidated statements of operations may create significant
volatility in our reported results of operations, including potentially changing
net loss attributable to stockholders to net income attributable to
stockholders, or vice versa, from quarter to quarter.

We typically have an option to acquire, and our tax equity investors may have an
option to withdraw and require us to purchase, all the equity interests our tax
equity investor holds in the tax equity funds starting approximately five years
after the last solar energy system in the applicable tax equity fund is
operational. If we or our tax equity investors exercise this option, we are
typically required to pay at least the fair market value of the tax equity
investor's equity interest and, in certain cases, a contractual minimum amount.
From our inception through December 31, 2021, we have received commitments of
approximately $1.2 billion through the use of tax equity funds, of which an
aggregate of $978.8 million has been funded and $106.0 million remains available
for use.

Key financial and operational indicators


We regularly review a number of metrics, including the following key operational
and financial metrics, to evaluate our business, measure our performance,
identify trends affecting our business, formulate our financial projections and
make strategic decisions.

Number of Customers. We define number of customers to include every unique
individual possessing an in-service product that is subject to a Sunnova lease,
PPA or loan agreement, or with respect to which Sunnova is obligated to perform
a service under an active agreement between Sunnova and the individual or
between Sunnova and a third party. For all solar energy systems or energy
storage systems installed by us, in-service means the related solar energy
system or energy storage system, as applicable, must have met all the
requirements to begin operation and be interconnected to the electrical grid.
For all products other than solar energy systems or energy storage systems,
which are subject to a loan agreement between Sunnova and a customer, in-service
means the customer is obligated to begin making payments to Sunnova under the
loan agreement. We do not include in our number of customers any customer
possessing a solar energy system or energy storage system under a lease, PPA or
loan agreement that has reached mechanical completion but has not received
permission to operate from the local utility or for whom we have terminated the
contract and removed the solar energy system. We also do not include in our
number of customers any customer that has been in default under his or her
lease, PPA or loan agreement in excess of six months. We track the total number
of customers as an indicator of our historical growth and our rate of growth
from period to period.

                                             As of December 31,
                                          2021               2020        Change
                Number of customers       195,400            107,500      87,900



Weighted Average Number of Systems. We calculate the weighted average number of
systems based on the number of months a customer and any additional service
obligation related to a solar energy system is in-service during a given
measurement period. The weighted average number of systems reflects the number
of systems at the beginning of a period, plus the total number of new systems
added in the period adjusted by a factor that accounts for the partial period
nature of those new systems. For purposes of this calculation, we assume all new
systems added during a month were added in the middle of that month. The number
of systems for any end of period will exceed the number of customers, as defined
above, for that same end of period as we are also including any additional
services and/or contracts a customer or third party executed for the additional
work for the same residence. We track the weighted average system count in order
to accurately reflect the contribution of the appropriate number of systems to
key financial metrics over the measurement period.

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                                                                                 Year Ended
                                                                                 December 31,
                                                                               2021                   2020                 2019

Weighted average number of systems (excluding loan contracts and cash sales)

                                                     127,200                 77,900              60,100
Weighted average number of systems with loan agreements                         27,500                 14,200               8,400
Weighted average number of systems with cash sales                                 600                      -                   -
Weighted average number of systems                                             155,300                 92,100              68,500



Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) plus net
interest expense, depreciation and amortization expense, income tax expense,
financing deal costs, natural disaster losses and related charges, net, losses
on extinguishment of long-term debt, realized and unrealized gains and losses on
fair value instruments, amortization of payments to dealers for exclusivity and
other bonus arrangements, legal settlements and excluding the effect of certain
non-recurring items we do not consider to be indicative of our ongoing operating
performance such as, but not limited to, costs of our initial public offering
("IPO"), acquisition costs, losses on unenforceable contracts and other non-cash
items such as non-cash compensation expense, asset retirement obligation ("ARO")
accretion expense, provision for current expected credit losses and non-cash
inventory impairments.

Adjusted EBITDA is a non-GAAP financial measure we use as a performance measure.
We believe investors and securities analysts also use Adjusted EBITDA in
evaluating our operating performance. This measurement is not recognized in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") and should not be viewed as an alternative to GAAP measures of
performance. The GAAP measure most directly comparable to Adjusted EBITDA is net
income (loss). The presentation of Adjusted EBITDA should not be construed to
suggest our future results will be unaffected by non-cash or non-recurring
items. In addition, our calculation of Adjusted EBITDA is not necessarily
comparable to Adjusted EBITDA as calculated by other companies.

We believe Adjusted EBITDA is useful to management, investors and analysts in
providing a measure of core financial performance adjusted to allow for
comparisons of results of operations across reporting periods on a consistent
basis. These adjustments are intended to exclude items that are not indicative
of the ongoing operating performance of the business. Adjusted EBITDA is also
used by our management for internal planning purposes, including our
consolidated operating budget, and by our Board in setting performance-based
compensation targets. Adjusted EBITDA should not be considered an alternative to
but viewed in conjunction with GAAP results, as we believe it provides a more
complete understanding of ongoing business performance and trends than GAAP
measures alone. Adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation or as a substitute for analysis of our
results as reported under GAAP.

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                                                                                 Year Ended
                                                                                 December 31,
                                                                             2021                2020                2019
                                                                                            (in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss                                                                 $ (147,510)         $ (307,818)         $ (133,434)
Interest expense, net                                                       116,248             154,580             108,024
Interest expense, net-affiliates                                                  -                   -               4,098
Interest income                                                             (34,228)            (23,741)            (12,483)
Income tax expense                                                              260                 181                   -
Depreciation expense                                                         85,600              66,066              49,340
Amortization expense                                                         21,771                  32                  29
EBITDA                                                                       42,141            (110,700)             15,574
Non-cash compensation expense (1)                                            17,236              10,873              10,512
ARO accretion expense                                                         2,897               2,186               1,443
Financing deal costs                                                          1,411               4,454               1,161
Natural disaster losses and related charges, net                                  -                  31                  54
IPO costs                                                                         -                   -               3,804
Acquisition costs                                                             6,709                   -                   -
Loss on unenforceable contracts                                                   -                   -               2,381
Loss on extinguishment of long-term debt, net                                 9,824             142,772                   -
Loss on extinguishment of long-term debt, net-affiliates                          -                   -              10,645
Unrealized (gain) loss on fair value instruments                            (21,988)               (907)                150
Realized (gain) loss on fair value instruments                                    -                (835)                730

Amortization of payments to dealers for exclusivity and other bonus agreements

                                                      2,968               1,820                 583
Legal settlements                                                                 -                   -               1,260
Provision for current expected credit losses                                 23,679               7,969                   -
Non-cash inventory impairments                                                  982               1,934                   -

Adjusted EBITDA                                                          $   85,859          $   59,597          $   48,297



(1)  Amount includes the non-cash effect of equity-based compensation plans of
$17.2 million, $10.9 million and $9.2 million for the years ended December 31,
2021, 2020 and 2019, respectively, and partial forgiveness of a loan to an
executive officer used to purchase our capital stock of $1.3 million for the
year ended December 31, 2019.

Interest Income and Principal Payments from Customer Notes Receivable. Under our
loan agreements, the customer obtains financing for the purchase of a solar
energy system from us and we agree to operate and maintain the solar energy
system throughout the duration of the agreement. Pursuant to the terms of the
loan agreement, the customer makes scheduled principal and interest payments to
us and has the option to prepay principal at any time in part or in full.
Whereas we typically recognize payments from customers under our leases and PPAs
as revenue, we recognize payments received from customers under our loan
agreements (a) as interest income, to the extent attributable to earned interest
on the contract that financed the customer's purchase of the solar energy
system; (b) as a reduction of a note receivable on the balance sheet, to the
extent attributable to a return of principal (whether scheduled or prepaid) on
the contract that financed the customer's purchase of the solar energy system;
and (c) as revenue, to the extent attributable to payments for operations and
maintenance services provided by us.

While Adjusted EBITDA effectively captures the operating performance of our
leases and PPAs, it only reflects the service portion of the operating
performance under our loan agreements. We do not consider our types of solar
service agreements differently when evaluating our operating performance. In
order to present a measure of operating performance that provides comparability
without regard to the different accounting treatment among our three types of
solar service agreements, we consider interest income from customer notes
receivable and principal proceeds from customer notes receivable, net of related
revenue, as key performance metrics. We believe these two metrics provide a more
meaningful and uniform method of
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analyzing our operating performance when viewed in light of our other key
performance metrics across the three primary types of solar service agreements.

                                                                             Year Ended
                                                                             December 31,
                                                                          2021              2020              2019
                                                                                       (in thousands)
Interest income from customer notes receivable                         $ 33,696          $ 23,239          $ 11,588
Principal proceeds from customer notes receivable, net of
related revenue                                                        $ 59,274          $ 32,580          $ 20,044



Adjusted Operating Expense. We define Adjusted Operating Expense as total
operating expense less depreciation and amortization expense, financing deal
costs, natural disaster losses and related charges, net, amortization of
payments to dealers for exclusivity and other bonus arrangements, legal
settlements, direct sales costs, cost of revenue related to cash sales,
unrealized losses on fair value instruments and excluding the effect of certain
non-recurring items we do not consider to be indicative of our ongoing operating
performance such as, but not limited to, costs of our IPO, acquisition costs,
losses on unenforceable contracts and other non-cash items such as non-cash
compensation expense, ARO accretion expense, provision for current expected
credit losses and non-cash inventory impairments. Adjusted Operating Expense is
a non-GAAP financial measure we use as a performance measure. We believe
investors and securities analysts will also use Adjusted Operating Expense in
evaluating our performance. This measurement is not recognized in accordance
with GAAP and should not be viewed as an alternative to GAAP measures of
performance. The GAAP measure most directly comparable to Adjusted Operating
Expense is total operating expense. We believe Adjusted Operating Expense is a
supplemental financial measure useful to management, analysts, investors,
lenders and rating agencies as an indicator of the efficiency of our operations
between reporting periods. Adjusted Operating Expense should not be considered
an alternative to but viewed in conjunction with GAAP total operating expense,
as we believe it provides a more complete understanding of our performance than
GAAP measures alone. Adjusted Operating Expense has limitations as an analytical
tool and you should not consider it in isolation or as a substitute for analysis
of our results as reported under GAAP, including total operating expense.

We use per system metrics, including Adjusted Operating Expense per weighted
average system, as an additional way to evaluate our performance. Specifically,
we consider the change in this metric from period to period as a way to evaluate
our performance in the context of changes we experience in the overall customer
base. While the Adjusted Operating Expense figure provides a valuable indicator
of our overall performance, evaluating this metric on a per system basis allows
for further nuanced understanding by management, investors and analysts of the
financial impact of each additional system.

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                                                                                  Year Ended
                                                                                  December 31,
                                                                               2021                  2020               2019
                                                                                 (in thousands, except per system data)
Reconciliation of Total Operating Expense, Net to Adjusted
Operating Expense:
Total operating expense, net                                             $      296,642          $ 196,598          $ 153,826
Depreciation expense                                                            (85,600)           (66,066)           (49,340)
Amortization expense                                                            (21,771)               (32)               (29)
Non-cash compensation expense                                                   (17,236)           (10,873)           (10,512)
ARO accretion expense                                                            (2,897)            (2,186)            (1,443)
Financing deal costs                                                             (1,411)            (4,454)            (1,161)
Natural disaster losses and related charges, net                                      -                (31)               (54)
IPO costs                                                                             -                  -             (3,804)
Acquisition costs                                                                (6,709)                 -                  -
Loss on unenforceable contracts                                                       -                  -             (2,381)

Amortization of payments to dealers for exclusivity and other bonus agreements

                                                         (2,968)            (1,820)              (583)
Legal settlements                                                                     -                  -             (1,260)
Provision for current expected credit losses                                    (23,679)            (7,969)                 -
Non-cash inventory impairments                                                     (982)            (1,934)                 -
Direct sales costs                                                                 (733)                 -                  -
Cost of revenue related to cash sales                                           (14,525)                 -                  -
Unrealized gain on fair value instruments                                        22,504                  -                  -

Adjusted Operating Expense                                               $      140,635          $ 101,233          $  83,259
Adjusted Operating Expense per weighted average system                   $  

906 $1,099 $1,215

Estimation of the gross value of the customer under contract. We calculate the Customer’s Estimated Gross Contract Value as defined below. We believe that the estimated gross customer contract value can serve as a useful tool for investors and analysts to compare the residual value of our customer contracts to that of our peers.


Estimated gross contracted customer value as of a specific measurement date
represents the sum of the present value of the remaining estimated future net
cash flows we expect to receive from existing customers during the initial
contract term of our leases and PPAs, which are typically 25 years in length,
plus the present value of future net cash flows we expect to receive from the
sale of related SRECs, either under existing contracts or in future sales, plus
the cash flows we expect to receive from energy services programs such as grid
services, plus the carrying value of outstanding customer loans on our balance
sheet. From these aggregate estimated initial cash flows, we subtract the
present value of estimated net cash distributions to redeemable noncontrolling
interests and noncontrolling interests and estimated operating, maintenance and
administrative expenses associated with the solar service agreements. These
estimated future cash flows reflect the projected monthly customer payments over
the life of our solar service agreements and depend on various factors including
but not limited to solar service agreement type, contracted rates, expected sun
hours and the projected production capacity of the solar equipment installed.
For the purpose of calculating this metric, we discount all future cash flows at
4%.

The anticipated operating, maintenance and administrative expenses included in
the calculation of estimated gross contracted customer value include, among
other things, expenses related to accounting, reporting, audit, insurance,
maintenance and repairs. In the aggregate, we estimate these expenses are $20
per kilowatt per year initially, with 2% annual increases for inflation, and an
additional $81 per year non-escalating expense included for energy storage
systems. We do not include maintenance and repair costs for inverters and
similar equipment as those are largely covered by the applicable product and
dealer warranties for the life of the product, but we do include additional cost
for energy storage systems, which are only covered by a 10-year warranty.
Expected distributions to tax equity investors vary among the different tax
equity funds and are based on individual tax equity fund contract provisions.

Estimated gross contracted customer value is forecasted as of a specific date.
It is forward-looking and we use judgment in developing the assumptions used to
calculate it. Factors that could impact estimated gross contracted customer
value include, but are not limited to, customer payment defaults, or declines in
utility rates or early termination of a contract in certain
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circumstances, including prior to installation. The following table presents the
calculation of estimated gross contracted customer value as of December 31, 2021
and 2020, calculated using a 4% discount rate.

                                                          As of December 31,
                                                           2021            2020
                                                             (in millions)
        Estimated gross contracted customer value    $    4,337          $ 2,997



Sensitivity Analysis. The calculation of estimated gross contracted customer
value and associated operational metrics requires us to make a number of
assumptions regarding future revenues and costs which may not prove accurate.
Accordingly, we present below a sensitivity analysis with a range of
assumptions. We consider a discount rate of 4% to be appropriate based on recent
transactions that demonstrate a portfolio of residential solar service
agreements is an asset class that can be securitized successfully on a long-term
basis with a coupon of less than 4%. We also present these metrics with a
discount rate of 4% based on industry practice. The appropriate discount rate
for these estimates may change in the future due to the level of inflation,
rising interest rates, our cost of capital and consumer demand for solar energy
systems. In addition, the table below provides a range of estimated gross
contracted customer value amounts if different cumulative customer loss rate
assumptions were used. We are presenting this information for illustrative
purposes only and as a comparison to information published by our peers.

                            Estimated Gross Contracted Customer Value
                                                     As of December 31, 2021
                                                          Discount rate
              Cumulative customer loss rate       2%            4%           6%
                                                          (in millions)
              5%                              $   4,658      $ 4,101      $ 3,676
              0%                              $   4,976      $ 4,337      $ 3,853


Important factors and trends affecting our business


Our results of operations and our ability to grow our business over time could
be impacted by a number of factors and trends that affect our industry
generally, as well as new offerings of services and products we may acquire or
seek to acquire in the future. Additionally, our business is concentrated in
certain markets, putting us at risk of region-specific disruptions such as
adverse economic, regulatory, political, weather and other conditions. See "Item
1A. Risk Factors" for further discussion of risks affecting our business.

Financing Availability. Our future growth depends, in significant part, on our
ability to raise capital from third-party investors on competitive terms to help
finance the origination of our solar energy systems under our solar service
agreements. We have historically used debt, such as convertible senior notes,
asset-backed and loan-backed securitizations and warehouse facilities, tax
equity, preferred equity and other financing strategies to help fund our
operations. From our inception through December 31, 2021, we have raised more
than $9.0 billion in total capital commitments from equity, debt and tax equity
investors. With respect to tax equity, there are a limited number of potential
tax equity investors, and the competition for this investment capital is
intense. The principal tax credit on which tax equity investors in our industry
rely is the Section 48(a) ITC. Starting January 1, 2020, the amount for the
Section 48(a) ITC was equal to 30% of the basis of eligible solar property that
began construction before 2020 if placed in service before 2026. By statute, the
Section 48(a) ITC percentage decreased to 26% for eligible solar property that
began construction during 2020 or 2021 or begins construction in 2022, 22% if
construction begins in 2023 and 10% if construction begins after 2023 or if the
property is placed into service after 2025. This reduction in the Section 48(a)
ITC will likely reduce our use of tax equity financing in the future unless the
Section 48(a) ITC is increased or replaced. IRS guidance includes a safe harbor
that may apply when a taxpayer (or in certain cases, a contractor) pays or
incurs 5% or more of the costs of a solar energy system before the end of the
applicable year, even though the solar energy system is not placed in service
until after the end of that year. For installations in 2021, we purchased prior
to 2020 substantially all the inverters that we estimated would be deployed
under our lease and PPA agreements that we expected would allow the related
solar energy systems to qualify for the 30% Section 48(a) ITC by satisfying the
5% ITC Safe Harbor. Based on various market factors, however, not all solar
energy systems installed in 2021 qualify for the Section 48(a) ITC at 30%. For
solar energy systems installed in 2021 that did not meet all requirements for
the 30% Section 48(a) ITC, such solar energy systems are expected to qualify for
the 26% Section 48(a) ITC. Additionally, we may make further inventory purchases
in future periods to extend the availability of each period's Section 48(a) ITC.
Our ability to raise capital from third-party investors is affected by general
economic conditions, the state of the capital markets, inflation levels and
concerns about our industry or business. Specifically, interest rates remain
subject to volatility that may result from action taken by the Federal Reserve.
Recent data
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have suggested inflationary pressures may be more durable than anticipated,
which could result in interest rate increases and/or the tapering of
quantitative easing policies enacted towards the outset of the COVID-19 pandemic
sooner than previously expected.

Cost of Solar Energy Systems and Energy Storage Systems. Although the solar
panel market has seen an increase in supply, upward pressure on prices may occur
due to growth in the solar industry, regulatory policy changes, tariffs and
duties, inflationary cost pressures and an increase in demand. As a result of
these developments, we may pay higher prices on imported solar modules, which
may make it less economical for us to serve certain markets. Attachment rates
for energy storage systems have trended higher while the price to acquire has
remained steady and increased slightly for some suppliers due to several market
variables, including COVID-19, raw material shortages and freight prices, but
this still remains a potential area of growth for us.

Energy Storage Systems. Our energy storage systems increase our customers'
independence from the centralized utility and provide on-site backup power when
there is a grid outage due to storms, wildfires, other natural disasters and
general power failures caused by supply or transmission issues. In addition, at
times it can be more economic to consume less energy from the grid or,
alternatively, to export solar energy back to the grid. Recent technological
advancements for energy storage systems allow the energy storage system to adapt
to pricing and utility rate shifts by controlling the inflows and outflows of
power, allowing customers to increase the value of their solar energy system
plus energy storage system. The energy storage system charges during the day,
making the energy it stores available to the home when needed. It also features
software that can customize power usage for the individual customer, providing
backup power, optimizing solar energy consumption versus grid consumption or
preventing export to the grid as appropriate. The software is tailored based on
utility regulation, economic indicators and grid conditions. The combination of
energy control, increased energy resilience and independence from the grid is
strong incentive for customers to adopt solar and energy storage. As energy
storage systems and their related software features become more advanced, we
expect to see increased adoption of energy storage systems.

Climate Change Action. As a result of increasing global awareness of and
aversion to climate change impacts, we believe the renewable energy market in
which we operate, and investment in climate solutions more broadly, will
continue to grow as the impact of climate change increases. This trend, along
with increasing commitments to reduce carbon emissions, is expected to result in
increased demand for our products and services. Under the current presidential
administration, the focus on cleaner energy sources and technology to
decarbonize the U.S. economy continues to accelerate. The Biden administration
has taken immediate steps that we believe signify support for cleaner energy
sources, including, but not limited to, rejoining the Paris Climate Accord,
re-establishing a social price on carbon used in cost/benefit analysis for
policy making and announcing a commitment to transition the U.S. economy to a
net-zero carbon economy by 2050. We expect the Biden administration, combined
with a closely divided Congress, to continue to take actions that are supportive
of the renewable energy industry, such as incentivizing clean energy sources and
supporting new investment in areas like renewables.

Government Regulations, Policies and Incentives. Our growth strategy depends in
significant part on government policies and incentives that promote and support
solar energy and enhance the economic viability of distributed residential
solar. These policies and incentives come in various forms, including net
metering, eligibility for accelerated depreciation such as the MACRS, SRECs, tax
abatements, rebates, renewable targets, incentive programs and tax credits,
particularly the Section 48(a) ITC and the Section 25D Credit. Policies
requiring solar on new homes or new roofs, such as those enacted in California
and New York City, also support the growth of distributed solar. The sale of
SRECs has constituted a significant portion of our revenue historically. A
change in the value of SRECs or changes in other policies or a loss or reduction
in such incentives could decrease the attractiveness of distributed residential
solar to us, our dealers and our customers in applicable markets, which could
reduce our customer acquisition opportunities. Such a loss or reduction could
also reduce our willingness to pursue certain customer acquisitions due to
decreased revenue or income under our solar service agreements. Additionally,
such a loss or reduction may also impact the terms of and availability of
third-party financing. If any of these government regulations, policies or
incentives are adversely amended, delayed, eliminated, reduced, retroactively
changed or not extended beyond their current expiration dates or there is a
negative impact from the recent federal law changes or proposals, our operating
results and the demand for, and the economics of, distributed residential solar
energy may decline, which could harm our business.

Components of operating results


Revenue. We recognize revenue from contracts with customers as we satisfy our
performance obligations at a transaction price reflecting an amount of
consideration based upon an estimated rate of return, net of cash incentives. We
express this rate of return as the solar rate per kWh in the customer contract.
The amount of revenue we recognize does not equal customer cash payments because
we satisfy performance obligations ahead of cash receipt or evenly as we provide
continuous access on a stand-ready basis to the solar energy system. We reflect
the differences between revenue recognition and cash payments received in
accounts receivable, other assets or deferred revenue, as appropriate.
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Contents


PPAs. We have determined solar service agreements under which customers purchase
electricity from us should be accounted for as revenue from contracts with
customers. We recognize revenue based upon the amount of electricity delivered
as determined by remote monitoring equipment at solar rates specified under the
contracts. The PPAs generally have a term of 20 or 25 years with an opportunity
for customers to renew for up to an additional 10 years, via two five-year or
one 10-year renewal options.

Lease Agreements. We are the lessor under lease agreements for solar energy
systems and energy storage systems, which we account for as revenue from
contracts with customers. We recognize revenue on a straight-line basis over the
contract term as we satisfy our obligation to provide continuous access to the
solar energy system. The lease agreements generally have a term of 20 or 25
years with an opportunity for customers to renew for up to an additional 10
years, via two five-year or one 10-year renewal options.

We provide customers under our lease agreements a performance guarantee that
each solar energy system will achieve a certain specified minimum solar energy
production output. The specified minimum solar energy production output may not
be achieved due to natural fluctuations in the weather or equipment failures
from exposure and wear and tear outside of our control, among other factors. We
determine the amount of guaranteed output based on a number of different
factors, including (a) the specific site information relating to the tilt of the
panels, azimuth (a horizontal angle measured clockwise in degrees from a
reference direction) of the panels, size of the solar energy system and shading
on site; (b) the calculated amount of available irradiance (amount of energy for
a given flat surface facing a specific direction) based on historical average
weather data and (c) the calculated amount of energy output of the solar energy
system.

If the solar energy system does not produce the guaranteed production amount, we
are required to provide a bill credit or refund a portion of the previously
remitted customer payments, where the bill credit or repayment is calculated as
the product of (a) the shortfall production amount and (b) the dollar amount
(guaranteed rate) per kWh that is fixed throughout the term of the contract.
These bill credits or remittances of a customer's payments, if needed, are
payable in January following the end of the first three years of the solar
energy system's placed in service date and then every annual period thereafter.
See Note 17, Commitments and Contingencies, to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.

SRECs. Each SREC represents the environmental benefit of one megawatt hour
(1,000 kWh) generated by a solar energy system. We sell SRECs to utilities and
other third parties who use the SRECs to meet renewable portfolio standards and
can do so separate from the actual electricity generated by the renewable-based
generation source. We account for SRECs generated from solar energy systems
owned by us, as opposed to those owned by our customers, as governmental
incentives with no costs incurred to obtain them and do not consider those SRECs
output of the underlying solar energy systems. We classify SRECs as inventory
held until sold and delivered to third parties. We enter into economic hedges
with major financial institutions related to expected production of SRECs
through forward contracts to partially mitigate the risk of decreases in SREC
market rates. While these fixed price forward contracts serve as an economic
hedge against spot price fluctuations for the SRECs, the contracts do not
qualify for hedge accounting and are not designated as cash flow hedges or fair
value hedges. The contracts require us to physically deliver the SRECs upon
settlement. We recognize the related revenue upon the transfer of the SRECs to
the counterparty. The costs related to the sales of SRECs are generally limited
to fees for brokered transactions. Accordingly, the sale of SRECs in a period
generally has a favorable impact on our operating results for that period. In
certain circumstances we are required to purchase SRECs on the open market to
fulfill minimum delivery requirements under our forward contracts.

Cash Sales. Cash sales revenue represents revenue from a customer's purchase of
a solar energy system from us typically when purchasing a new home. We recognize
the related revenue upon verification of the home closing.

Loan Agreements. We recognize payments received from customers under loan
agreements (a) as interest income, to the extent attributable to earned interest
on the contract that financed the customer's purchase of the solar energy
system; (b) as a reduction of a note receivable on the balance sheet, to the
extent attributable to a return of principal (whether scheduled or prepaid) on
the contract that financed the customer's purchase of the solar energy system;
and (c) as revenue, to the extent attributable to payments for operations and
maintenance services provided by us. Similar to our lease agreements, we provide
customers under our loan agreements a performance guarantee that each solar
energy system will achieve a certain specified minimum solar energy production
output, which is a significant proportion of its expected output.

Other Revenue. Other revenue includes certain state and utility incentives,
revenue from the direct sale of energy storage systems to customers and sales of
service plans. We recognize revenue from state and utility incentives in the
periods in which they are earned. We recognize revenue from the direct sale of
energy storage systems in the period in which the storage
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components are placed in service. Service plans are available to customers whose
solar energy system was not originally sold by Sunnova. We recognize revenue
from service plan contracts over the life of the contract, which is typically 10
years.

Cost of Revenue-Amortization. The cost of amortization of revenue represents the amortization of solar power systems under leases and PPAs that have been commissioned.


Cost of Revenue-Other. Cost of revenue-other represents costs related to cash
sales, costs to purchase SRECs on the open market, SREC broker fees and other
items deemed to be a cost of providing the service of selling power to customers
or potential customers, such as certain costs to service loan agreements, costs
for filing under the Uniform Commercial Code to maintain title, title searches,
credit checks on potential customers at the time of initial contract and other
similar costs, typically directly related to the volume of customers and
potential customers.

Operations and Maintenance Expense. Operations and maintenance expense
represents costs from third parties for maintaining and servicing the solar
energy systems, property insurance, property taxes and warranties. When services
for maintaining and servicing solar energy systems are provided by Sunnova
personnel rather than third parties, those amounts are included in payroll costs
classified within general and administrative expense. During the years ended
December 31, 2021, 2020 and 2019, we incurred $14.3 million, $7.4 million and
$4.6 million, respectively, of Sunnova personnel costs related to maintaining
and servicing solar energy systems, which are classified in general and
administrative expense. In addition, operations and maintenance expense includes
write downs and write-offs related to inventory adjustments, gains and losses on
disposals and other impairments and impairments due to natural disaster losses
net of insurance proceeds recovered under our business interruption and property
damage insurance coverage for natural disasters.

General and Administrative Expense. General and administrative expense
represents costs for our employees, such as salaries, bonuses, benefits and all
other employee-related costs, including stock-based compensation, professional
fees related to legal, accounting, human resources, finance and training,
information technology and software services, marketing and communications, IPO
costs, acquisition costs, travel and rent and other office-related expenses.
General and administrative expense also includes depreciation on assets not
classified as solar energy systems, including information technology software
and development projects, vehicles, furniture, fixtures, computer equipment and
leasehold improvements and accretion expense on AROs. We capitalize a portion of
general and administrative costs, such as payroll-related costs, that is related
to employees who are directly involved in the design, construction, installation
and testing of the solar energy systems but not directly associated with a
particular asset. We also capitalize a portion of general and administrative
costs, such as payroll-related costs, that is related to employees who are
directly associated with and devote time to internal information technology
software and development projects, to the extent of the time spent directly on
the application and development stage of such software project.

Other Operating Income. Other operating income primarily represents changes in
the fair values of certain financial instruments related to our investments in
solar receivables and contingent consideration.

Interest expense, net. Interest expense, net, represents interest on our borrowings under our various credit facilities, amortization of debt discounts and deferred financing fees, and realized and unrealized gains and losses on derivative instruments .

Interest income. Interest income represents interest income on notes receivable under our loan program and income on short-term investments with financial institutions.


Loss on Extinguishment of Long-Term Debt, Net. Loss on extinguishment of
long-term debt, net resulted from a make-whole payment related to the early
repayment of one of our solar asset-backed notes securitizations. See Note 8,
Long-Term Debt, to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.

Other (income) Expenses. Other (income) expenses mainly represent changes in the fair value of certain financial instruments related to non-operating assets.


Income Tax Expense. We account for income taxes under Accounting Standards
Codification 740, Income Taxes. As such, we determine deferred tax assets and
liabilities based on temporary differences resulting from the different
treatment of items for tax and financial reporting purposes. We measure deferred
tax assets and liabilities using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
reverse. Additionally, we must assess the likelihood that deferred tax assets
will be recovered as deductions from future taxable income. We have a full
valuation allowance on our deferred tax assets because we believe it is more
likely than not that our deferred tax assets will not be realized. We evaluate
the recoverability of our deferred tax assets on a quarterly basis. The income
tax expense includes the effects of taxes incurred in U.S. territories where the
tax code for the respective territory may have separate tax reporting
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requirements and taxes incurred in states with pass-through entity taxes.

Net income (loss) attributable to redeemable non-controlling interests and non-controlling interests. Net income attributable to redeemable non-controlling interests and non-controlling interests represents tax interests in the net income or net loss of certain subsidiaries consolidated on a hypothetical liquidation basis at book value.

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Table of Contents Results of Operations – Year Ended December 31, 2021 Compared to the year ended
December 31, 2020


The following table sets forth our consolidated statements of operations data
for the periods indicated.

                                                                             Year Ended
                                                                             December 31,
                                                                      2021                2020               Change
                                                                                     (in thousands)
Revenue                                                           $  241,752          $  160,820          $  80,932

Operating expense:
Cost of revenue-depreciation                                          76,474              58,431             18,043
Cost of revenue-other                                                 21,834               6,747             15,087
Operations and maintenance                                            19,583              16,313              3,270
General and administrative                                           204,236             115,148             89,088
Other operating income                                               (25,485)                (41)           (25,444)
Total operating expense, net                                         296,642             196,598            100,044

Operating loss                                                       (54,890)            (35,778)           (19,112)

Interest expense, net                                                116,248             154,580            (38,332)

Interest income                                                      (34,228)            (23,741)           (10,487)
Loss on extinguishment of long-term debt, net                          9,824             142,772           (132,948)

Other (income) expense                                                   516              (1,752)             2,268
Loss before income tax                                              (147,250)           (307,637)           160,387

Income tax expense                                                       260                 181                 79
Net loss                                                            (147,510)           (307,818)           160,308

Net loss attributable to redeemable non-controlling interests and non-controlling interests

                                              (9,382)            (55,534)            46,152
Net loss attributable to stockholders                             $ (138,128)         $ (252,284)         $ 114,156



Revenue

                                              Year Ended
                                              December 31,
                                          2021           2020          Change
                                                    (in thousands)
                 PPA revenue           $  86,087      $  65,760      $ 20,327
                 Lease revenue            71,784         51,650        20,134
                 SREC revenue             41,537         35,747         5,790
                 Cash sales revenue       27,176              -        27,176
                 Loan revenue              7,768          3,032         4,736
                 Other revenue             7,400          4,631         2,769
                 Total                 $ 241,752      $ 160,820      $ 80,932



Revenue increased by $80.9 million in the year ended December 31, 2021 compared
to the year ended December 31, 2020 primarily as a result of an increased number
of solar energy systems in service and the April 2021 acquisition of SunStreet.
The weighted average number of systems (excluding systems with loan agreements
and cash sales) increased from approximately 77,900 for the year ended
December 31, 2020 to approximately 127,200 for the year ended December 31, 2021.
Excluding SREC revenue, revenue under our loan agreements and cash sales
revenue, on a weighted average number of
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systems basis, revenue decreased from $1,567 per system for the year ended
December 31, 2020 to $1,299 per system for the same period in 2021 (17%
decrease) primarily due to an increase in the number of service-only customers
acquired from SunStreet, which generate significantly less revenue per customer.
SREC revenue increased by $5.8 million in the year ended December 31, 2021
compared to the year ended December 31, 2020 primarily as a result of an
increase in the number of solar energy systems in service, which resulted in
additional SREC production. The fluctuations in SREC revenue from period to
period are also affected by the total number of solar energy systems, weather
seasonality and hedge and spot prices associated with the timing of the sale of
SRECs. On a weighted average number of systems basis, revenues under our loan
agreements increased from $214 per system for the year ended December 31, 2020
to $282 per system for the same period in 2021 (32% increase) primarily due to
(a) higher battery attachment rates and (b) increasing expected battery
replacement costs which are included in the loan resulting in larger customer
loan balances.

Cost of Revenue-Depreciation

                                                    Year Ended
                                                    December 31,
                                                 2021          2020         Change
                                                          (in thousands)
             Cost of revenue-depreciation     $ 76,474      $ 58,431      $ 18,043



Cost of revenue-depreciation increased by $18.0 million in the year ended
December 31, 2021 compared to the year ended December 31, 2020. This increase
was primarily due to an increase in the weighted average number of systems
(excluding systems with loan agreements, service-only agreements and cash sales)
from approximately 77,900 for the year ended December 31, 2020 to approximately
101,200 for the year ended December 31, 2021. On a weighted average number of
systems basis, cost of revenue-depreciation remained relatively flat at $750 per
system for the year ended December 31, 2020 compared to $756 per system for the
same period in 2021 (1% increase).

Cost of Revenue-Other

                                                Year Ended
                                                December 31,
                                             2021         2020         Change
                                                     (in thousands)
                  Cost of revenue-other   $ 21,834      $ 6,747      $ 15,087



Cost of revenue-other increased by $15.1 million in the year ended December 31,
2021 compared to the year ended December 31, 2020. This increase was primarily
due to costs of $14.5 million related to cash sales revenue, which began with
the April 2021 acquisition of SunStreet.

Operating and maintenance expenses

                                                   Year Ended
                                                   December 31,
                                                2021          2020        Change
                                                        (in thousands)
               Operations and maintenance    $ 19,583      $ 16,313      $ 3,270



Operations and maintenance expense increased by $3.3 million in the year ended
December 31, 2021 compared to the year ended December 31, 2020 primarily due to
higher property insurance costs and truck roll costs, offset by lower
impairments and losses on disposals and property tax expense. Operations and
maintenance expense per weighted average system, excluding net natural disaster
losses and non-cash inventory impairments, decreased from $184 per system for
the year ended December 31, 2020 to $146 per system for the year ended
December 31, 2021.

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General and Administrative Expense

                                                  Year Ended
                                                  December 31,
                                              2021           2020          Change
                                                        (in thousands)
             General and administrative    $ 204,236      $ 115,148      $ 89,088



General and administrative expense increased by $89.1 million in the year ended
December 31, 2021 compared to the year ended December 31, 2020 primarily due to
increases of (a) $27.8 million of payroll and employee related expenses
primarily due to equity-based compensation expense, the hiring of personnel to
support growth and the acquisition of personnel from SunStreet, of which $6.9
million relates to the growth of our customers and performing additional
operations and maintenance work by Sunnova personnel rather than by third
parties, (b) $21.7 million of amortization expense primarily due to the
amortization of intangible assets acquired from SunStreet, (c) $15.7 million of
provision for current expected credit losses, (d) $6.7 million of transaction
costs related to acquisition activities and (e) $6.5 million in consultants,
contractors, and professional fees.

Other exploitation products


Other operating income increased by $25.4 million in the year ended December 31,
2021 compared to the year ended December 31, 2020 primarily due to the change in
the fair value of certain financial instruments and contingent consideration.

Interest Expense, Net

                                               Year Ended
                                               December 31,
                                           2021           2020          Change
                                                     (in thousands)
                Interest expense, net   $ 116,248      $ 154,580      $ (38,332)



Interest expense, net decreased by $38.3 million in the year ended December 31,
2021 compared to the year ended December 31, 2020. This decrease was primarily
due to a decrease in realized losses on interest rate swaps of $49.0 million due
to the termination of certain debt facilities in 2020 and a decrease in
amortization of debt discounts of $5.7 million. These were partially offset by a
decrease in unrealized gains on interest rate swaps of $8.9 million and an
increase in amortization of deferred financing costs of $5.0 million.

Interest Income

                                            Year Ended
                                            December 31,
                                         2021          2020         Change
                                                  (in thousands)
                    Interest income   $ 34,228      $ 23,741      $ 10,487



Interest income increased by $10.5 million in the year ended December 31, 2021
compared to the year ended December 31, 2020. This increase was primarily due to
an increase in the weighted average number of systems with loan agreements from
approximately 14,200 for the year ended December 31, 2020 to approximately
27,500 for the year ended December 31, 2021. On a weighted average number of
systems basis, loan interest income decreased from $1,637 per system for the
year ended December 31, 2020 to $1,225 per system for the year ended
December 31, 2021 primarily due to a decrease in the annual interest rate for
new loans due to market conditions.

Loss on extinguishment of long-term debt, net


Loss on extinguishment of long-term debt, net decreased by $132.9 million in the
year ended December 31, 2021 compared to the year ended December 31, 2020
primarily due to the conversion of approximately $150.8 million aggregate
principal amount, including accrued and unpaid interest to the date of each
conversion, of our 9.75% convertible senior notes that met the criteria for
extinguishment accounting under GAAP during the year ended December 31, 2020,
offset by a make-whole
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payment related to the early repayment of one of our solar asset-backed notes
securitizations during the year ended December 31, 2021.

income tax expense


Income tax expense increased by $0.1 million in the year ended December 31, 2021
compared to the year ended December 31, 2020 primarily due to an increase in
taxes incurred in jurisdictions with separate tax-reporting requirements.

Net loss attributable to redeemable non-controlling interests and non-controlling interests


Net loss attributable to redeemable noncontrolling interests and noncontrolling
interests decreased by $46.2 million in the year ended December 31, 2021
compared to the year ended December 31, 2020 primarily due to a decrease in loss
attributable to noncontrolling interests from tax equity funds added in 2019.

Results of operations – Year ended December 31, 2020 Compared to the year ended
December 31, 2019


See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations-Year Ended December 31, 2020 Compared to Year
Ended December 31, 2019" in our Annual Report on Form 10-K filed with the SEC on
February 25, 2021.

Cash and capital resources


As of December 31, 2021, we had total cash of $391.9 million, of which $243.1
million was unrestricted, and $411.8 million of available borrowing capacity
under our various financing arrangements. We seek to maintain diversified and
cost-effective funding sources to finance and maintain our operations, fund
capital expenditures, including customer acquisitions, and satisfy obligations
arising from our indebtedness. For a discussion of cash requirements from
contractual and other obligations, see Note 17, Commitments and Contingencies,
to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. Historically, our primary sources of liquidity included
non-recourse and recourse debt, investor asset-backed and loan-backed
securitizations and cash generated from operations. Our business model requires
substantial outside financing arrangements to grow the business and facilitate
the deployment of additional solar energy systems. We will seek to raise
additional required capital, including from new and existing tax equity
investors, additional borrowings, securitizations and other potential debt and
equity financing sources. We believe our cash and financing arrangements, as
further described below, will be sufficient to meet our anticipated cash needs
for at least the next twelve months. As of December 31, 2021, we were in
compliance with all debt covenants under our financing arrangements.

Financing modalities


The following is a description of our various financing arrangements. For a
complete description of the facilities in place as of December 31, 2021 see Note
8, Long-Term Debt, to our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K.

Tax Fairness Fund Commitments


As of December 31, 2021, we had undrawn committed capital of approximately
$106.0 million under our tax equity funds, which may only be used to purchase
and install solar energy systems. We intend to establish new tax equity funds in
the future depending on their attractiveness, including the availability and
size of Section 48(a) ITCs and related safe harbors, and on investor demand for
such funding. The terms of the tax equity funds' operating agreements contain
allocations of taxable income (loss) and Section 48(a) ITCs that vary over time
and adjust between the members after either the tax equity investor
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receives its contractual rate of return or after a specified date. The following
table summarizes our tax equity commitments as of December 31, 2021:

                                     Date Class A          Class A Member
                                    Member Admitted      Capital Commitment
                                                           (in thousands)
                                   March 2017           $           97,500
                                   December 2017        $           45,000
                                   December 2017        $           57,000
                                   January 2019         $           50,000
                                   August 2019          $           75,000
                                   December 2019        $           50,000
                                   February 2020        $           75,000
                                   May 2020             $          155,000
                                   July 2020            $           10,000
                                   September 2020       $           75,000
                                   November 2020        $          100,000
                                   April 2021           $           50,000
                                   April 2021           $           25,000
                                   May 2021             $          150,000
                                   July 2021            $          150,000
                                   October 2021         $           11,634
                                   December 2021        $           50,000



In February 2022, we admitted a tax equity investor with a total capital
commitment of approximately $150.0 million. For additional information regarding
our tax equity fund commitments, see Note 13, Redeemable Noncontrolling
Interests and Noncontrolling Interests, to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K.

Warehouse and other debt financing


We from time to time enter into warehouse credit facilities as a source of
funding. Under the warehouse credit facilities, revolving or term financing is
provided to special purpose entities, which are typically our wholly-owned
subsidiaries, and secured by qualifying solar energy systems (including, if
applicable, energy storage systems) and related solar service agreements. The
cash flows generated by these solar service agreements are used to cover
required debt service payments under the related credit facility and satisfy the
expenses and reserve requirements of the special purpose entities. The warehouse
credit facilities allow for the pooling and transfer of eligible solar energy
systems and related solar service agreements on a non-recourse basis to the
subsidiary or us, subject to certain limited exceptions. In connection with
these warehouse credit facilities, certain of our affiliates receive a fee for
managing and servicing the solar energy systems pursuant to management and
servicing agreements. The special purpose entities are also typically required
to maintain reserve accounts, including a liquidity reserve account and a
reserve account for equipment replacements, each of which are funded from
initial deposits or cash flows to the levels specified therein.

The warehouse credit facility structures include certain features designed to
protect lenders. One of the common primary features relates to certain events,
such as the insufficiency of cash flows in the collateral pool of assets to meet
contractual requirements, the occurrence of which triggers an early repayment of
the loans and limits the relevant borrower's ability to obtain additional
advances or distribute funds to us. We refer to this as an "amortization event",
which may be based on, among other things, a debt service coverage ratio falling
or remaining below certain levels, default levels of solar assets exceeding
certain thresholds or excess spread falling below certain levels over a multiple
month period. In the event of an amortization event, the availability period
under a revolving warehouse credit facility may terminate and the borrower may
be required to repay the affected outstanding borrowings using available
collections received from the asset pool. However, the period of ultimate
repayment would be determined by the amount and timing of collections received.
An amortization event would impair our liquidity and may require us to utilize
our other available contingent liquidity or rely on alternative funding sources,
which may or may not be available at the time. The debt agreements of our
warehouse credit facilities also typically contain customary events of default
for solar warehouse financings that entitle the lenders to take various actions,
including the acceleration of
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amounts due under the related debt agreement and foreclosure on the borrower's
assets.

In April 2017, one of our subsidiaries entered into a secured revolving credit
facility with Credit Suisse AG, New York Branch, as administrative agent, and
the lenders party thereto. The credit facility was amended and restated in March
2019 and further amended in September 2019, December 2019, January 2020, March
2020, September 2020 and March 2021. Under the amended credit facility, the
subsidiary may borrow up to $350.0 million, subject to a borrowing base
calculated based on a specified advance rate applied to the net outstanding
principal balance of the solar loans securing the credit facility. The proceeds
of the loans under the credit facility are available for funding the purchase of
solar loans, making deposits in the subsidiary's reserve accounts and paying
fees in connection with the credit facility. The credit facility bears interest
at an annual rate of adjusted LIBOR plus an applicable margin. The credit
facility has a maturity date occurring in November 2023. Sunnova Energy
Corporation guarantees the performance obligations of certain affiliates under
agreements entered into in connection with the credit facility, as well as
certain indemnity and refund obligations. In June 2020, we used proceeds from
the HELIV Notes (as defined below) to repay $149.3 million in aggregate
principal amount outstanding. In October 2020, we used proceeds from another
credit facility entered into in September 2020 to repay $28.0 million in
aggregate principal amount outstanding. In February 2021, we used proceeds from
the HELV Notes (as defined below) to repay $107.3 million in aggregate principal
amount outstanding. In July 2021, we used proceeds from the HELVI Notes (as
defined below) to repay $144.0 million in aggregate principal amount
outstanding. As of December 31, 2021, we had $10.0 million of available
borrowing capacity under the credit facility.

In September 2019, one of our subsidiaries entered into a secured revolving
credit facility with Credit Suisse AG, New York Branch, as administrative agent,
and the lenders party thereto. The credit facility was amended in December 2019
and further amended in January 2020, February 2020, March 2020, May 2020, June
2020, October 2020, November 2020, January 2021, September 2021 and October
2021. Under the amended credit facility, the subsidiary may borrow up to an
initial $460.7 million with a maximum facility amount of $600.0 million based on
the aggregate value of solar assets owned by the borrower's subsidiaries, which
are primarily tax equity funds, subject to certain concentration limitations.
The proceeds from the credit facility are available for funding certain reserve
accounts required by the credit facility, making distributions to us and paying
fees incurred in connection with closing the credit facility. The credit
facility bears interest at an annual rate of adjusted LIBOR plus a weighted
average margin of 4.15%. The credit facility has a maturity date occurring in
November 2022. Sunnova Energy Corporation guarantees the performance obligations
of certain affiliates under agreements entered into in connection with the
credit facility, as well as certain indemnity and repurchase obligations. In
November 2020, we used proceeds from the SOLII Notes (as defined below) to repay
$211.5 million in aggregate principal amount outstanding. In June 2021, we used
proceeds from the SOLIII Notes (as defined below) to repay $105.1 million in
aggregate principal amount outstanding. As of December 31, 2021, we had $341.8
million of available borrowing capacity under the credit facility.

In December 2019, one of our subsidiaries entered into a secured revolving
credit facility with Credit Suisse AG, New York Branch, as administrative agent,
and the lenders party thereto. The credit facility was amended in September 2020
and November 2020. Under the credit facility, the subsidiary could borrow up to
an initial $95.2 million with a maximum facility amount of $137.6 million,
subject to lender consent and certain other conditions. The proceeds from the
credit facility were available for purchasing certain eligible equipment the
borrower intends will allow certain related solar energy systems to qualify for
the 30% Section 48(a) ITC by satisfying the 5% ITC Safe Harbor outlined in IRS
Notice 2018-59, funding a reserve account required by the credit facility and
paying fees incurred in connection with closing the credit facility. The credit
facility bore interest at an annual rate of either LIBOR divided by a percentage
equal to 100% minus a reserve percentage or a base rate, plus an applicable
margin. The credit facility had a maturity date occurring in December 2022.
Sunnova Energy Corporation guaranteed the performance obligations of certain
affiliates under agreements entered into in connection with the credit facility
and also provided a limited payment guarantee in respect of the borrower's
obligations under the credit facility that was subject to a cap of $9.5 million,
which equates to 10% of the initial commitments. The availability period for
additional borrowings under the credit facility ended in December 2020. In May
2021, we used proceeds from the 0.25% convertible senior notes to fully repay
the aggregate principal amount outstanding of $48.2 million and the credit
facility was terminated.

In September 2020, one of our subsidiaries entered into a secured revolving
credit facility with Banco Popular de Puerto Rico. Under the credit facility,
the subsidiary may borrow up to $60.0 million, subject to a borrowing base
calculated based on a specified advance rate applied to the net outstanding
principal balance of the solar loans securing the credit facility. The proceeds
of the loans under the credit facility are available for funding the purchase of
solar loans, making deposits in the subsidiary's reserve account and paying fees
in connection with the credit facility. The credit facility bears interest at an
annual rate of adjusted LIBOR plus an applicable margin. The credit facility has
a maturity date occurring in September 2023. Sunnova Energy Corporation
guarantees the performance obligations of certain affiliates under agreements
entered into in connection with the credit facility. In February 2021, we used
proceeds from the HELV Notes (as defined below) to repay $29.5 million in
aggregate principal amount outstanding. In July 2021, we used proceeds from the
HELVI Notes (as defined below) to repay
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$24.9 million as the total amount of the principal outstanding. From December 31, 2021we have had $60.0 million borrowing capacity available under the credit facility.


In April 2021, in connection with the Acquisition, we entered into an
arrangement to finance the purchase of $29.0 million of inventory at an annual
interest rate of 6.00% plus LIBOR (or acceptable replacement index) over twelve
months (the "MR Note"). In August 2021, the aggregate principal amount of the MR
Note was increased to $32.3 million as part of the purchase price adjustments.
In August 2021, the aggregate principal amount outstanding under the MR Note of
$23.7 million was fully repaid.

Securitizations


We from time to time securitize solar service agreements and related assets as a
source of funding. We access the Rule 144A asset-backed securitization market
using wholly-owned special purpose entities to securitize pools of assets, which
historically have been solar energy systems and the related lease agreements and
PPAs and ancillary rights and agreements both directly or indirectly through
interests in the managing member of our tax equity funds. We also securitize our
loan agreements and ancillary rights and agreements.

In April 2017, one of our subsidiaries issued $191.8 million in aggregate
principal amount of Series 2017-1 Class A solar asset-backed notes, $18.0
million in aggregate principal amount of Series 2017-1 Class B solar
asset-backed notes, and $45.0 million in aggregate principal amount of 2017-1
Class C solar asset-backed notes (collectively, the "HELI Notes") with a
maturity date of September 2049. The HELI Notes bore interest at an annual rate
of 4.94%, 6.00% and 8.00% for the Class A, Class B and Class C notes,
respectively. In June 2021, we used proceeds from the SOLIII Notes (as defined
below) to fully repay the aggregate principal amount outstanding of $205.7
million.

In November 2018, one of our subsidiaries issued $202.0 million in aggregate
principal amount of Series 2018-1 Class A solar asset-backed notes and $60.7
million in aggregate principal amount of Series 2018-1 Class B solar
asset-backed notes (collectively, the "HELII Notes") with a maturity date of
July 2048. The HELII Notes bear interest at an annual rate of 4.87% and 7.71%
for the Class A and Class B notes, respectively.

In March 2019, one of our subsidiaries entered into a note purchase agreement
pursuant to which certain institutional investors committed to purchase up to
$358.0 million principal amount of notes ("RAYSI Notes") in one or more
asset-backed private placement securitizations. In March 2019, our subsidiary,
the RAYSI Notes issuer, issued an aggregate $133.1 million principal amount of
RAYSI Notes pursuant to this note purchase agreement. In June 2019, the RAYSI
Notes issuer issued an aggregate $6.4 million in principal amount of RAYSI Notes
pursuant to a supplemental note purchase agreement.

In June 2019, one of our subsidiaries issued $139.7 million in aggregate
principal amount of Series 2019-A Class A solar loan-backed notes, $14.9 million
in aggregate principal amount of Series 2019-A Class B solar loan-backed notes
and $13.0 million in aggregate principal amount of Series 2019-A Class C solar
loan-backed notes (collectively, the "HELIII Notes") with a maturity date of
June 2046. The HELIII Notes bear interest at an annual rate of 3.75%, 4.49% and
5.32% for the Class A, Class B and Class C notes, respectively.

In February 2020, one of our subsidiaries issued $337.1 million in aggregate
principal amount of Series 2020-1 Class A solar asset-backed notes and $75.4
million in aggregate principal amount of Series 2020-1 Class B solar
asset-backed notes (collectively, the "SOLI Notes") with a maturity date of
January 2055. The SOLI Notes bear interest at an annual rate of 3.35% and 5.54%
for the Class A and Class B notes, respectively.

In June 2020, one of our subsidiaries issued $135.9 million in aggregate
principal amount of Series 2020-A Class A solar loan-backed notes and $22.6
million in aggregate principal amount of Series 2020-A Class B solar loan-backed
notes (collectively, the "HELIV Notes") with a maturity date of June 2047. The
HELIV Notes bear interest at an annual rate of 2.98% and 7.25% for the Class A
and Class B notes, respectively.

In November 2020, one our subsidiaries issued $209.1 million in aggregate
principal amount of Series 2020-2 Class A solar asset-backed notes and $45.6
million in aggregate principal amount of Series 2020-2 Class B solar
asset-backed notes (collectively, the "SOLII Notes") with a maturity date of
November 2055. The SOLII Notes bear interest at an annual rate of 2.73% and
5.47% for the Class A and Class B notes, respectively.

In February 2021one of our subsidiaries issued $150.1 million as aggregate principal amount of Series 2021-A Class A Solar Loan-backed Notes and
$38.6 million in aggregate principal amount of Series 2021-A Class B Solar Loan-Backed Notes (collectively, “HELV Notes”) with a maturity date of
February 2048. HELV Notes bear interest at an annual rate of

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1.80% and 3.15% for the Class A and Class B notes, respectively.

In June 2021, one of our subsidiaries issued $319.0 million in aggregate
principal amount of Series 2021-1 solar asset-backed notes (the "SOLIII Notes")
with a maturity date of April 2056. The SOLIII Notes bear interest at an annual
rate of 2.58%.

In July 2021, one of our subsidiaries issued $106.2 million in aggregate
principal amount of Series 2021-B Class A solar loan-backed notes and
$106.2 million in aggregate principal amount of Series 2021-B Class B solar
loan-backed notes (collectively the "HELVI Notes") with a maturity date of July
2048. The HELVI Notes bear interest at an annual rate of 1.62% and 2.01% for the
Class A and Class B notes, respectively.

In October 2021, one of our subsidiaries issued $68.4 million in aggregate
principal amount of Series 2021-C Class A solar loan-backed notes, $55.9 million
in aggregate principal amount of Series 2021-C Class B solar loan-backed notes
and $31.5 million in aggregate principal amount of Series 2021-C Class C solar
loan-backed notes with a maturity date of October 2048. The HELVII Notes bear
interest at an annual rate of 2.03%, 2.33% and 2.63% for the Class A, Class B
and Class C notes, respectively.

In February 2022, one of our subsidiaries entered into a Note Purchase Agreement
related to the sale of $131.9 million in aggregate principal amount of Series
2022-A Class A solar loan-backed notes, $102.2 million in aggregate principal
amount of Series 2022-A Class B solar loan-backed notes and $63.8 million in
aggregate principal amount of Series 2022-A Class C solar loan-backed notes with
a maturity date of February 2049. The HELVIII Notes will bear interest at an
annual rate of 2.79%, 3.13% and 3.53% for the Class A, Class B and Class C
notes, respectively. The transaction is expected to close on or about February
24, 2022, subject to customary closing conditions.

The securitization structures include certain features designed to protect
investors. The primary feature relates to the availability and adequacy of cash
flows in the securitized pool of assets to meet contractual requirements, the
insufficiency of which triggers an early repayment of the notes. We refer to
this as "early amortization", which may be based on, among other things, a debt
service coverage ratio falling or remaining below certain levels. As of
December 31, 2021, we have not had any early amortizations under any of our
securitizations. In the event of an early amortization, the notes issuer would
be required to repay the affected outstanding securitized borrowings using
available collections received from the asset pool. However, the period of
ultimate repayment would be determined based on the amount and timing of
collections received and, in limited circumstances, early amortization may be
cured prior to full repayment. An early amortization event would impair our
liquidity and may require us to utilize our available non-securitization related
contingent liquidity or rely on alternative funding sources, which may or may
not be available at the time. The indentures of our securitizations also
typically contain customary events of default for solar securitizations that may
entitle the noteholders to take various actions, including the acceleration of
amounts due under the related indenture and foreclosure on the issuer's assets.

Senior Notes


During the year ended December 31, 2020, certain of the holders of our 9.75%
convertible senior notes ("9.75% convertible senior notes") converted
approximately $150.8 million aggregate principal amount, including accrued and
unpaid interest to the date of each conversion, of our 9.75% convertible senior
notes into 11,168,874 shares of our common stock. During the year ended
December 31, 2021, the remaining holders of our 9.75% convertible senior notes
converted approximately $97.1 million aggregate principal amount, including
accrued and unpaid interest to the date of each conversion, of our 9.75%
convertible senior notes into 7,196,035 shares of our common stock. As such,
there are no longer any 9.75% convertible senior notes outstanding.

In May 2021, we issued and sold an aggregate principal amount of $575.0 million
of our 0.25% convertible senior notes ("0.25% convertible senior notes") in a
private placement at a discount to the initial purchasers of 2.5%, for an
aggregate purchase price of $560.6 million. The 0.25% convertible senior notes
mature in December 2026 unless earlier redeemed, repurchased or converted. In
connection with the pricing of the 0.25% convertible senior notes, we used
proceeds of $91.7 million to enter into privately negotiated capped call
transactions, which are expected to reduce the potential dilution to common
shares and/or offset potential cash payments that could be required to be made
in excess of the principal amount upon any exchange of notes. Such reduction
and/or offset is subject to a cap initially equal to $60.00 per share, subject
to adjustments.

In August 2021, we issued and sold an aggregate principal amount of $400.0
million of our 5.875% senior notes ("5.875% senior notes") in a private
placement at a discount to the initial purchasers of 1.24%, for an aggregate
purchase price of $395.0 million. The 5.875% senior notes mature in September
2026.
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Contractual obligations


The following table summarizes our contractual obligations as of December 31,
2021:

                                                                             Payments Due by Period (1)
                                     Total                2022            2023-2024           2025-2026           Beyond 2026
                                                                         (in thousands)
Debt obligations (including
future interest) (2)             $ 3,919,518          $ 232,809          $ 728,137          $ 1,350,397          $ 1,608,175
AROs                                  54,396                  -                  -                    -               54,396
Operating lease payments (3)          22,176              1,364              5,881                6,293                8,638
Finance lease payments                 1,761                702                925                  134                    -
Guaranteed performance
obligations                            5,293              3,175              1,980                  138                    -
Inventory purchase obligations         4,974                  -              4,974                    -                    -
Other obligations (4)                 50,979             28,149             22,817                   13                    -
Total                            $ 4,059,097          $ 266,199          $ 764,714          $ 1,356,975          $ 1,671,209



(1)Does not include amounts related to the contingent obligation to purchase all
of a tax equity investor's units upon exercise of their withdrawal rights. The
withdrawal price for the tax equity investors' interest in the respective fund
is equal to the sum of: (a) any unpaid, accrued priority return and (b) the
lesser of: (i) a fixed price and (ii) the fair market value of such interest at
the date the option is exercised. Due to uncertainties associated with
estimating the timing and amount of the withdrawal price, we cannot determine
the potential future payments that we could have to make under these withdrawal
rights. For additional information regarding the withdrawal rights see Note 13,
Redeemable Noncontrolling Interests and Noncontrolling Interests, to our
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
(2)Interest payments related to long-term debt and interest rate swaps are
calculated and estimated for the periods presented based on the amount of debt
outstanding and the interest rates as of December 31, 2021.
(3)Includes reimbursements of approximately $847,000 for leasehold improvements
expected in 2022 through 2024.
(4)Other obligations relate to information technology services and licenses and
distributions payable to redeemable noncontrolling interests.

Historical Cash Flows – End of Year December 31, 2021 Compared to the year ended
December 31, 2020

The following table summarizes our cash flows for the periods indicated:

                                                         Year Ended
                                                         December 31,
                                                    2021             2020           Change
                                                               (in thousands)

Net cash used in operating activities ($209,230) ($131,466) ($77,764)

Net cash used in investing activities (1,241,216) (829,519) (411,697)

    Net cash provided by financing activities     1,464,450       1,188,587         275,863
    Net increase in cash and restricted cash    $    14,004      $  227,602      $ (213,598)



Operating Activities

Net cash used in operating activities increased by $77.8 million in the year
ended December 31, 2021 compared to the year ended December 31, 2020. This
increase is primarily a result of increases in purchases of inventory and
prepaid inventory of $102.4 million and payments to dealers for exclusivity and
other bonus arrangements of $3.0 million. This increase is offset by an increase
in net inflows of $17.4 million in 2021 compared to net outflows of $57.3
million in 2020 based on: (a) our net loss of $147.5 million in 2021 excluding
non-cash operating items of $164.9 million, primarily from depreciation,
impairments and losses on disposals, amortization of intangible assets,
amortization of deferred financing costs and debt discounts, unrealized net
gains on derivatives, unrealized net gains on fair value instruments, losses on
extinguishment of long-term debt and equity-based compensation charges, which
results in net outflows of $17.4 million and (b) our net loss of $307.8 million
in
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Table of contents 2020 excluding non-cash operating items of $250.5 millionprimarily amortization, write-downs and losses on disposals, amortization of deferred financing costs and debt discounts, net unrealized gains on derivatives, net unrealized gains on instruments at fair value, losses on extinguishment of long-term debt and stock-based compensation expense, resulting in net outflows of $57.3 million. These net differences between the two periods resulted in a net change in cash flow from operations of $74.7 million in 2021 compared to 2020.

Investing activities


Net cash used in investing activities increased by $411.7 million in the year
ended December 31, 2021 compared to the year ended December 31, 2020. This
increase is primarily a result of increases in payments for investments and
customer notes receivable of $443.7 million ($728.9 million in 2021 compared to
$285.2 million in 2020) and payments for investments in solar receivables of
$32.2 million in 2021. This increase is partially offset by purchases of
property and equipment, primarily solar energy systems, of $23.8 million ($554.5
million in 2021 compared to $578.4 million in 2020) and proceeds from customer
notes receivable of $66.9 million (of which $48.8 million was prepaid) in 2021
compared to $35.5 million (of which $28.2 million was prepaid) in 2020.

Fundraising activities


Net cash provided by financing activities increased by $275.9 million in the
year ended December 31, 2021 compared to the year ended December 31, 2020. This
increase is primarily a result of increases in net borrowings under our debt
facilities of $571.3 million ($1.3 billion in 2021 compared to $682.9 million in
2020) and net contributions from our redeemable noncontrolling interests and
noncontrolling interests of $20.5 ($334.3 million in 2021 compared to $313.7
million in 2020). This increase is partially offset by proceeds from the
issuance of common stock of $10.5 million in 2021 compared to $152.3 million in
2020, the purchase of capped call transactions of $91.7 million in 2021 and net
proceeds from the equity component of a debt instrument of $73.7 million in
2020.

Historical Cash Flows – End of Year December 31, 2020 Compared to the year ended
December 31, 2019


See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Historical Cash Flows-Year Ended December 31, 2020 Compared to Year
Ended December 31, 2019" in our Annual Report on Form 10-K filed with the SEC on
February 25, 2021 pursuant to the Securities Exchange Act of 1934, as amended.

Seasonality

See “Activity-Seasonality”.

Significant Accounting Policies and Estimates


Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with GAAP which requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, cash
flows and related disclosures. We base our estimates on historical experience
and on various other assumptions we believe to be reasonable under the
circumstances. In many instances, we could have reasonably used different
accounting estimates, and in other instances, changes in the accounting
estimates are reasonably likely to occur from period-to-period. Actual results
may differ from these estimates. Our future consolidated financial statements
will be affected to the extent our actual results materially differ from these
estimates.

We identify our most critical accounting policies as those that are the most
pervasive and important to the portrayal of our financial position and results
of operations, and that require the most difficult, subjective, and/or complex
judgments by management regarding estimates about matters that are inherently
uncertain. We believe the assumptions and estimates associated with our
principles of consolidation, the valuation of assets acquired and liabilities
assumed in acquisitions, the estimated useful life of our solar energy systems,
the valuation of the removal assumptions, including costs, associated with AROs,
the valuation of redeemable noncontrolling interests and noncontrolling
interests and our allowance for current expected credit losses have the greatest
subjectivity and impact on our consolidated financial statements. Therefore, we
consider these to be our critical accounting policies and estimates and discuss
these items in detail below. See Note 2, Significant Accounting Policies, to our
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for further discussion of our accounting policies.

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Principles of Consolidation

Our consolidated financial statements reflect our accounts and those of our
subsidiaries in which we have a controlling financial interest. The typical
condition for a controlling financial interest is holding a majority of the
voting interests of an entity. However, a controlling financial interest may
also exist in entities, such as variable interest entities ("VIEs"), through
arrangements that do not involve holding a majority of the voting interests. We
consolidate any VIE of which we are the primary beneficiary, which is defined as
the party that has (a) the power to direct the activities of a VIE that most
significantly impact the VIE's economic performance and (b) the obligation to
absorb losses or receive benefits from the VIE that could potentially be
significant to the VIE. We evaluate our relationships with our VIEs on an
ongoing basis to determine whether we continue to be the primary beneficiary. We
have eliminated all intercompany transactions in consolidation.

Acquisitions


Business combinations are accounted for using the acquisition method of
accounting. The purchase price of an acquisition is measured at the estimated
fair value of the assets acquired, equity instruments issued and liabilities
assumed at the acquisition date. Any noncontrolling interests acquired are also
initially measured at fair value. Costs that are directly attributable to the
acquisition are expensed as incurred to general and administrative expense. We
recognize goodwill if the aggregate fair value of the total purchase
consideration and the noncontrolling interests is in excess of the aggregate
fair value of the assets acquired and liabilities assumed.

Asset acquisitions are measured based on the cost to us, including transaction
costs. Asset acquisition costs, or the consideration transferred by us, are
assumed to be equal to the fair value of the net assets acquired. If the
consideration transferred is cash, measurement is based on the amount of cash we
paid to the seller, as well as transaction costs incurred. Consideration given
in the form of non-monetary assets, liabilities incurred or equity instruments
issued is measured based on either the cost to us or the fair value of the
assets or net assets acquired, whichever is more clearly evident. The cost of an
asset acquisition is allocated to the assets acquired based on their estimated
fair values. Goodwill is not recognized in an asset acquisition.

The fair values of the assets acquired and liabilities assumed are based on a
complex series of judgments about future events and uncertainties and rely
heavily on estimates and assumptions. Significant estimates include, but are not
limited to, discount rates, forecasted cash flows, forecasted customer growth
and earnout consideration. These estimates are inherently uncertain and
unpredictable.

Useful life of solar power systems


Our solar energy systems have an estimated useful life of 35 years. We
considered both (a) available information related to the technology currently
being employed in the solar energy systems and (b) the terms of the solar leases
that have a 25 year term with two five-year renewal options to conclude a 35
year useful life is appropriate. In addition, we reviewed numerous published and
online sources from academia, government institutions and private industry and
held discussions with certain manufacturers of our solar energy systems to
support our estimated useful life of 35 years for the crystalline silicone solar
modules we use. We define the useful life of a solar module as the duration for
which a solar module operates at or above 80% of its initial power output, which
we understand to be the generally accepted standard used by government, academia
and the solar industry.

Depreciation and amortization of solar energy systems are calculated using the
straight-line method over the estimated useful lives of the solar energy systems
and are recorded in cost of revenue-depreciation. Depreciation begins when a
solar energy system is placed in service. Costs associated with improvements to
a solar energy system, which extend the life, increase the capacity or improve
the efficiency of the solar energy systems, are capitalized and depreciated over
the remaining life of the asset.

BRA


We have AROs arising from contractual or regulatory requirements to perform
certain asset retirement activities at the time the solar energy systems are
disposed. We recognize an ARO at the point an obligating event takes place,
typically when the solar energy system is placed in service. An asset is
considered retired when it is permanently taken out of service, such as through
a sale or disposal.

The liability is initially measured at fair value based on the present value of
estimated removal costs and subsequently adjusted for changes in the underlying
assumptions and for accretion expense. We estimate approximately half of our
solar
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energy systems will require removal at our expense in the future. The
corresponding asset retirement costs are capitalized as part of the carrying
amount of the solar energy system and depreciated over the solar energy system's
remaining useful life. We may revise our estimated future liabilities based on
recent actual experiences, changes in certain customer-specific estimates and
other cost estimate changes. If there are changes in estimated future costs,
those changes will be recorded as either a reduction or addition in the carrying
amount of the remaining unamortized asset and the ARO and either decrease or
increase depreciation and accretion expense amounts prospectively. Inherent in
the calculation of the fair value of our AROs are numerous assumptions and
judgments, including the ultimate settlement amounts, inflation factors, credit
adjusted discount rates, timing of settlement and changes in the legal,
regulatory, environmental and political environments. Due to the intrinsic
uncertainties present when estimating asset retirement costs, as well as asset
retirement dates, our ARO estimates are subject to ongoing volatility.

Redeemable Non-Controlling Interests and Non-Controlling Interests


Noncontrolling interests represent third-party interests in the net assets of
certain consolidated subsidiaries (the "tax equity entities"). For these tax
equity entities, we have determined the appropriate methodology for calculating
the noncontrolling interest balances that reflects the substantive economic
arrangements in the operating agreements is a balance sheet approach using the
hypothetical liquidation at book value ("HLBV") method. Under the HLBV method,
the amounts reported as noncontrolling interests in the consolidated balance
sheets represent the amounts third-party investors would hypothetically receive
at each balance sheet date under the liquidation provisions of the operating
agreements, assuming the net assets of the subsidiaries were liquidated at
amounts determined in accordance with GAAP and distributed to the investors. The
noncontrolling interest balances in these subsidiaries are reported as a
component of equity in the consolidated balance sheets. The amount of income or
loss allocated to noncontrolling interests in the results of operations for the
subsidiaries using HLBV are determined as the difference in the noncontrolling
interest balances in the consolidated balance sheets at the start and end of
each reporting period, after taking into account any capital transactions
between the subsidiaries and the third-party investors. Factors used in the HLBV
calculation include GAAP income (loss), taxable income (loss), capital
contributions, investment tax credits, distributions and the stipulated targeted
investor return specified in the subsidiaries' operating agreements. Changes in
these factors could have a significant impact on the amounts that investors
would receive upon a hypothetical liquidation. The use of the HLBV method to
allocate income (loss) to the noncontrolling interest holders may create
volatility in the consolidated statements of operations as the application of
HLBV can drive changes in net income or loss attributable to noncontrolling
interests from period to period. We classify certain noncontrolling interests
with redemption features that are not solely within our control outside of
permanent equity in the consolidated balance sheets. Redeemable noncontrolling
interests are reported using the greater of the carrying value at each reporting
date as determined by the HLBV method or the estimated redemption value at the
end of each reporting period. Estimating the redemption value of the redeemable
noncontrolling interests requires the use of significant assumptions and
estimates, such as projected future cash flows.

Currently expected credit losses


Our allowance for current expected credit losses is deducted from the customer
notes receivable amortized cost to present the net amount expected to be
collected. It is measured on a collective (pool) basis when similar risk
characteristics (such as financial asset type, customer credit rating,
contractual term and vintage) exist. In determining the allowance for credit
losses, we identify customers with potential disputes or collection issues and
consider our historical level of credit losses and current economic trends that
might impact the level of future credit losses. Adjustments to historical loss
information are made for differences in current loan-specific risk
characteristics, such as differences in underwriting standards. Expected credit
losses are estimated over the contractual term of the loan agreements based on
the best available data at the time, and are adjusted for expected prepayments
when appropriate. The contractual term excludes expected extensions, renewals
and modifications unless either of the following applies: (a) we have a
reasonable expectation at the reporting date that a troubled debt restructuring
will be executed with an individual customer or (b) the extension or renewal
options are included in the original or modified contract at the reporting date
and are not unconditionally cancelable by us. We review the allowance quarterly
for any significant macroeconomic trends affecting the market but not yet
impacting us. Assessments performed throughout the year include normal
macroeconomic trends (e.g. delinquency and default and loss rates from leading
credit bureaus by industry) as well as trends specifically related to the
COVID-19 pandemic (e.g. forbearance and credit quality). While making
adjustments to loss rates is ultimately a subjective determination, we have
created an internal and external data-driven evaluation process to ensure any
adjustments or updates to the model are informed and fact-based prior to
executing such a change.

Recent accounting pronouncements

See Note 2, Significant Accounting Policies, to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

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