Cypress Creek Renewables, a leading U.S. utility-scale solar developer, has issued a round of layoffs impacting roughly 20 percent of its workforce, according to sources familiar with the matter. The company said the reductions come amid an effort to refocus on its most competitive markets.

Jobs cuts began to take effect Friday. LinkedIn currently shows 540 people employed at the company. Based on that figure, the layoffs will affect around 100 employees.

Cypress Creek confirmed a reduction in headcount across all business units, but declined to comment on exact numbers. As part of the restructuring, the developer said it would shift to its most promising markets, but declined to specify where it plans to expand operations and where it plans to pullback.

CEO Matt McGovern said numerous market factors impacting project economics precipitated the changes.

“We’re taking the steps we are to ensure we're more competitive in the future, in the markets where we know we have competitive advantage,” he said.

McGovern told Greentech Media that the company would prioritize business operations going forward in “core value creation centers” of development, EPC and project finance. Cypress Creek has also brought on new executives: Bryan Ellis, former vice president of U.S. energy sales at Tesla, as CFO; Mike Belikoff, former chief operating officer at Strata Solar, to lead EPC and O&M; and Noah Hyte, who was promoted to executive vice president of development.

The company also confirmed it has engaged Barclays to explore market partners that might be willing to take on a portion of its operating portfolio. Based on reporting in SparkSpread, Cypress could be looking to sell off a meaningful portion of its 1.5-gigawatt solar portfolio. (The company declined to confirm this report, and Barclays did not respond to requests for comment.) Just last week, Cypress Creek offloaded five projects, totaling 580 megawatts, to British developer Cubico Sustainable Investments.

McGovern described a variety of factors that made projects less economically viable and ultimately pushed the layoffs and the reorganization, including the company’s aggressive growth into new markets, state policy changes in implementation of the Public Utility Regulatory Policies Act (PURPA), and increasing pressure from tariffs on solar cells, modules and steel.

“The impact for Cypress has been pushing projects into negative territory from a financial modeling standpoint,” said McGovern. “It’s not like we can go to any of the utilities on the other side and increase the PPA rates because our costs are going up. In order for us to be competitive in these markets, we have to be selling them power at or below their avoided costs — or else we don’t even have a voice in the conversation. That’s where those things are colliding between the PURPA dynamics, how that’s playing out in different markets and where that increase in cost is particularly painful.”

The announcement is not the first indication of a financial pinch. In May, the company said it would stop investments in 1.5 gigawatts' worth of projects, 20 percent of its pipeline, due to financial pressures from Section 201 tariffs.

In discussing the restructuring, the company maintained that its long-term pipeline of projects remains unchanged at more than 7 gigawatts.

“We are trying to be as practical as we can and invest our dollars in projects that we believe have the clearest line of sight toward completion,” said McGovern. “We have a lot of inventory we’re excited to work through.”

Sources familiar with the matter told Greentech Media that the company’s 2019 pipeline could be as much as halved: around 500 megawatts rather than previously forecasted figures of around 1 gigawatt. Cypress Creek declined to comment on this figure and said the number is continually being refined. 

Another twist on the solar coaster

Cypress Creek’s story is one of rapid growth and quick success. The Santa Monica-based firm was founded in 2014. By December 2017, the company’s construction arm, Cypress Creek EPC, had deployed 1 gigawatt of solar across 16 states in the span of 18 months. McGovern said the company has fully developed 3.2 gigawatts of solar to date.

This week’s job cuts follow a strong, but slightly down year for the fast-growing utility-scale developer. Cypress Creek reports it deployed 686 megawatts of solar capacity across 78 projects last year. That’s less than the 798 megawatts of solar capacity it deployed in 2017, but still enough to cinch first place in the annual solar ranking — for the second year in a row — based on preliminary figures from Wood Mackenzie Power & Renewables.

But the layoffs, combined with the engagement of Barclays and the Cubico deal, suggest economic struggles. Though Cypress Creek has sold off projects in the past, including 79 megawatts in May 2017 and 130 megawatts in October 2017, the latest sale is much bigger, possibly indicating it’s part of an effort to generate cash.

“Cypress Creek historically has been a long-term developer and owner of projects,” said Colin Smith, a senior solar analyst at WoodMac. “While it is not uncommon to sell off individual projects, the sale of this big of a piece of their portfolio suggests they are either changing business strategy or looking to free up capital.”

There’s also been significant executive turnover in recent months. Data from LinkedIn shows Cypress Creek losing its executive vice president, a vice president of engineering, its chief technology officer, vice president of O&M and its vice president of new market development.

PURPA problems

Smith noted that Cypress Creek was left vulnerable to policy changes in key markets because it invested significantly in projects that relied on contracts tied to PURPA.

In 2017, Cypress Creek’s largest market, North Carolina, changed implementation rules for PURPA. Legislation (HB 589) lowered the size of projects eligible for “standard offer” contracts — power-purchase agreements with a set cost that utilities must pay to facilities that qualify — from 5 megawatt to 1 megawatt. The state also shortened those contracts from 15 to 10 years.

At the same time, North Carolina began working toward a competitive auction program, where an independent administrator would help utilities select projects bigger than 1 megawatt. The law also said those contracts could last 20 years.*

PURPA was designed to encourage the use of domestic renewable energy resources, and the 1978 law helped drive North Carolina to become the nation’s second-largest solar market. Solar advocates expressed concern that changes to PURPA contracts passed in HB 589, followed by a regulatory order lowering the “avoided cost” rate utilities pay for PURPA deals, would have a “suppressing effect” on prices paid for solar in the coming years.

Though Cypress Creek initially opposed efforts to restrict the state’s PURPA contracts — arguing the changes would make it difficult to secure financing — the developer later supported the legislation. It also said it had resolved previous disagreements with Duke Energy, a supporter of the changes.

But these changes are now likely squeezing Cypress Creek in what was a central market.

“PURPA development is a volume game, not a lowest-cost game,” said Smith. “Cypress Creek was building out a lot of volume where they weren’t incentivized to push for lowest-cost. At the same time, we were seeing other developers in the space compete head-to-head on who could get the lowest PPA possible.”

Cypress Creek staffed up quickly for growth and doubled down on the North Carolina PURPA market with the acquisition of FLS Energy in November 2016. At the time, FLS was a less successful version of Cypress Creek Renewables, said Smith, which made the purchase an interesting move. Cypress Creek has been the leading PURPA developer in terms of capacity.

“In my eyes, it would have been better to acquire [a company that] was doing better with large commercial and industrial clients, or [that had] made more inroads into municipal or co-op utilities,” he said. “The PURPA market is risky and can have rapid shutoffs.”

More speed bumps

North Carolina wasn’t the last of Cypress Creek’s state-level PURPA struggles. In 2018, the developer became embroiled in legal disputes in Montana and Michigan over PURPA contracts. In a comment to Energy News in June about its struggles in Michigan, Cypress Creek noted “similar experiences” with utilities elsewhere. In the past, Cypress Creek has also gone after PacifiCorp for PURPA-related complaints.

The policy battles were unique in each state. But, put simply, utilities didn’t want to be required to continue paying PURPA’s “avoided cost” rates, which are often higher than market solar rates. In states where the public utility commission sided with utilities, the loss of those guaranteed payouts put solar developers' planned projects in jeopardy.  

The implications of those PURPA fights could hurt Cypress Creek’s bottom line. According to the company’s complaint against DTE, it had filed 141 generator interconnection applications totaling 775.5 megawatts. In its complaint against Consumers Energy, Cypress Creek said it had 700 megawatts of capacity under development. In total, Cypress Creek said it planned to pour $3 billion into Michigan.

Randy Wheeless, a spokesperson with Duke Energy, said the utility still has about 370 PURPA contracts in its queue. Though Wheeless declined to say how many of those projects were from Cypress Creek, Duke testimony filed with the state utility commission in 2017 attributed 65 percent of its interconnection queue to just three companies: Cypress Creek Renewables, Strata Solar and ESA Renewables.

With the changes in the law, Wheeless said a “healthy amount” of queued projects will get grandfathered into the standard contract rate under PURPA, but, going forward, fewer projects will do so. That could mean many of the projects in the pipeline are no longer financially viable.

Cypress Creek said state-level PURPA changes have limited market access and growth, which is one reason the company has pursued other markets and offtake strategies in recent years. 

Cypress completed its first community solar project in New York state last summer. Sources noted the New York market took longer to launch than expected, but could represent a growth opportunity for the company in future. 

Tariffs hurt, too

According to CEO McGovern, the financial strain created by tariffs also played a central role, impacting “significant volumes of projects that we cannot pursue on the same timeline.”

“In some cases, they’re just no longer viable,” he added.

Though policy changes in China and a subsequent oversupply in the market have pushed costs down, McGovern said that that softening hasn’t entirely alleviated current pressures.

“We’re still contending with execution today,” said McGovern.

In addition to deploying hundreds of megawatts of solar around the U.S., Cypress Creek has also contributed to the growth of the industry through solar training programs. To support the workforce in areas where it plans expansion and to pull underrepresented communities into solar, the company has invested between $10,000 and $26,000 in programs in Michigan, New York, South Carolina, North Carolina, Illinois and, most recently, Oregon.

The company told Greentech Media that those initiatives would continue.

And despite the short-term stresses, McGovern remains optimistic about the company’s future. He said the changes won’t keep Cypress Creek from success in the markets where it does continue sending resources.

“We are incredibly competitive in our identified markets,” said McGovern. “The focus for our business going forward is prioritizing the assets where we know we are the most effective and continuing to execute as best we can.”

*Correction: This article previously stated that competitive bidding contracts in North Carolina could only last five years. They can last 20 years.