Back
Emily Walker has been tracking the damage the Republican megabill will do to a solar industry that’s helped roughly 5.4 million households put panels on their rooftops. It isn’t pretty.
“This is a net harm for the industry, especially for the long-tail installers and the small local businesses that have built this industry from the ground up,” said Walker, the director of content and insight at EnergySage.
While big national solar installers like Sunrun get a lot of attention, the majority of the U.S. home solar market is made up of smaller companies, ranging from regional installers to mom-and-pop businesses, she said.
These regional and local companies, often referred to as the “long tail” of the U.S. rooftop solar business, use EnergySage’s online solar marketplace to reach prospective customers and can expect to bear the brunt of the cuts to federal incentives cuts in the law passed by Republicans and signed by President Donald Trump earlier this month.
At the end of 2025, an incentive that’s helped offset the cost of rooftop solar for two decades will disappear. For all but a brief period in 2020, the Residential Clean Energy tax credit, known as 25D for its place in the tax code, has shaved 30% off the cost of a residential solar system, whether homeowners buy it for cash or finance it via a loan. That equates to about $8,400 that a household can save on a typical 11-kilowatt, $28,000 rooftop solar system.
Losing the tax credit will erode the economic benefits of solar, putting it out of reach for many homeowners and making it less valuable to those who can still afford it. It will take the average household several years longer to break even on their rooftop solar investment without the incentive in place.
“Fewer people will be able to go solar, and they will not be able to benefit from the energy cost savings of going solar,” said Glen Brand, vice president of policy and advocacy at Solar United Neighbors, a nonprofit that has helped organize tens of thousands of households to secure lower-cost rooftop solar. “That’s just a fact.”
It’s yet another blow to an industry that’s already struggling with rising interest rates and some negative state-level policy developments, including the steep cuts of net-metering values in California, the country’s largest rooftop solar market. In the U.S., residential solar sales fell last year for the first time since 2017, according to analysis firm Wood Mackenzie.
The new law’s solar-incentive clawbacks will make things worse. Wood Mackenzie’s recent “low case” forecast indicates that the U.S. will see a 42% decline in residential solar installed between 2025 and 2029 compared with what would have been installed with the tax credits in place.
“Many residential solar companies will be able to diversify and survive,” said Wood Mackenzie solar analyst Zoë Gaston. But “we do expect that some residential solar companies will not be able to adapt.”
That will mean “massive layoffs,” EnergySage’s Walker said. The Solar Energy Industries Association estimates that the phaseout of 25D could lead to about 84,000 job losses by the end of 2026. Of the more than 150 smaller solar installers surveyed by EnergySage, 92.3% said the law’s changes will harm their businesses, and 63% said it would “dramatically harm” their future prospects.
The sudden loss of tax credits compounds smaller installers’ challenges, Walker said. “Even if they were given another six months a year, they could pivot business models,” she said. But for “businesses this small, their margins are not huge. They don’t have the bandwidth, while trying to serve as many customers as they can through this year to claim the tax credit, to also pivot.”
Barry Cinnamon, CEO of solar and battery installation firm Cinnamon Energy Systems, said his strategy is to do as many tax credit–backed projects as possible in 2025 and then retrench. “Nobody wants to admit they’re going to have to cut overhead by 30% or 40% or more,” he said. “But for the solar hardcore people who want to stay in the business, you’ve got to cut your costs back.”
Despite the bad news for rooftop solar, the share price of Sunrun, the country’s top residential solar and battery installer, has not cratered over the last two weeks. Instead, it’s rallied since the law’s passage — and that’s because the law offered a bit more runway to a separate tax credit that large companies can use to facilitate third-party ownership structures for rooftop solar.
For more than a decade, nationwide solar companies like Sunrun, Tesla Energy, Freedom Forever, Trinity Power Systems, and the now-bankrupt Sunnova, SunPower, and Titan Solar Power have offered households solar systems through leases or power purchase agreements. Under those structures, companies maintain ownership of the solar systems, which allows them to utilize tax credits designed for utility-scale solar, wind, and other clean energy projects.
Under the Inflation Reduction Act, those decades-old tax credits were replaced this year with a 30% “tech neutral” investment tax credit, known as 48E for its place in the tax code. Republicans initially aimed to eliminate those tax credits for solar and wind power almost immediately. But the final version of the law allows companies to continue to claim them for projects that begin construction before July 4, 2026, as long as they reach completion within four years of that start date, and for projects that are connected to the grid by the end of 2027.
This means that, starting next year, households are going to have two options, Julien Dumoulin-Smith, head of equity research for power, utilities, and clean energy at investment firm Jefferies, said during a Latitude Media podcast last week. They can spend or borrow money to purchase a system without the benefit of tax credits, or they can sign up with a third-party owner that “can qualify for the tax credits, and indirectly flow that back to you in the form of a lower cost arrangement or offtake price,” he said.
That’s a significant advantage for third-party-ownership solar companies, which have regained market share against competing loan-based solar business models amid the rising interest rates of the post-Covid years and now make up roughly half the U.S. residential solar market.
But the pathway for third-party solar companies to tap federal tax credits remains challenging.
In the midst of the megabill’s passage from the Senate to the House of Representatives, Trump issued an executive order calling on the Treasury Department to quickly set guidelines to “strictly enforce the termination” of the solar and wind tax credits, with specific instructions to examine “restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built.”
That throws many of the assumptions on which third-party residential solar companies might build their business into uncertainty, Dumoulin-Smith said. Today, clean energy projects can secure start-of-construction dates for projects by buying at least 5% of the equipment and materials going into them under “safe harbor” provisions. But if the Treasury Department alters that understanding, perhaps by increasing the proportion of prepurchased equipment required, “that’s a big question mark here on what this means for residential solar in 2028 and 2029 and 2030,” he said.
Jenny Chase, lead solar analyst with BloombergNEF, warned of another potential trap: the law’s “foreign entity of concern” (FEOC) rules, which bar tax credits to companies with ties to China. It’s possible that the Treasury Department will issue guidance to “make it essentially impossible to prove there are no components, materials, or intellectual property from China, which would mean that anything not safe-harbored in 2025 cannot claim tax credits,” she said.
The Treasury Department is required in the law to issue its guidance by 2026, though several agency rulemakings under the Biden administration took longer than expected, and the Trump administration has since cut staff at the department.
These same risks extend to the lithium-ion batteries being added to a growing number of residential solar systems. The final version of the megabill allows projects using batteries to claim tax credits for them through the end of 2033, but only if they can meet FEOC restrictions — and most of the world’s lithium-ion batteries have materials and components made in China.
Cinnamon noted that regional installers like his company can partner with third-party solar providers, and he’s actively investigating his options. “But it’s also crazy, because nobody knows what the rules are, due to FEOC and changes in safe harbor.”
“It’s very hard to make specific financial and investment plans in this environment,” he said. “We don’t think it’s going to change — we know it’s going to change.”
Arrayed against all these downsides are some glimmers of hope for rooftop solar, however, including its seemingly inexorable decline in cost. That’s true even in the U.S., where solar system costs remain stubbornly higher than in the rest of the world.
According to the National Renewable Energy Laboratory, the cost of U.S. residential solar systems fell from an average of $8.60 to $2.70 per watt from 2010 to 2023, a 69% decline.
It’s now more affordable to install rooftop solar in large part because solar panels themselves have simply gotten much cheaper. While tariffs have bumped up U.S. prices in recent years, solar equipment costs now represent only a fraction of total installation costs.
Instead, it’s the “soft costs” — acquiring customers, designing systems to meet households’ needs, navigating lengthy permitting processes, securing utility interconnections, and offering long-term maintenance and operations support — that dictate the price tag of a system in the U.S. It’s in those areas that the industry will need to improve in order to make solar more affordable once tax credits disappear.
As Walker noted, state and local governments can be extremely helpful in driving down those costs. States have passed laws to streamline solar project permitting, and cities and counties have installed “instant permitting” software platforms that can dramatically cut wait times and administrative costs. Some utilities are starting to offer incentives to customers that enlist solar and battery systems in “virtual power plant” programs that reduce grid stresses and utility costs.
Rising utility rates themselves are also a counterweight to losing tax credits. The megabill’s cuts to clean energy incentives are expected to force utility rates upward by increasing the cost and restricting the expansion of solar, wind, and batteries, which make up the vast majority of new generation that can be added quickly to the grid, at a time of spiking demand for power from data centers, factories, and broader economic growth.
“There are basically only two ways to reduce and control your energy costs,” Solar United Neighbors’ Brand said. “One is to use less energy, through energy efficiency, insulation in your home, more efficient appliances, etc. The other is to reduce your fuel costs. With solar, your fuel costs are zero.”
.svg)
