The United States residential solar industry may now be on the brink of collapse. Facing macroeconomic challenges and shifting state and federal policies, an industry once defined by double-digit growth in installations is now experiencing steep declines – and the latest draft of the One Big Beautiful Bill Act makes conditions even worse.
The latest draft of the bill is broadly negative for clean energy, but it is particularly damaging to residential solar, cutting federal tax credits far sooner than expected.
Residential solar installations declined 31% in 2024. Over the last year, industry titans like SunPower, Sunnova, and Mosaic Solar have filed for bankruptcy.
The industry historically has leaned on the value proposition of lowering customer electricity bills and providing predictable costs for the long-term. However, that value has been increasingly difficult to provide.
Gone are the days of low interest rates enabling attractive terms for loans or leased systems. In many major markets, like California, bill credit rates for sending excess electricity to the grid have been slashed by 75% or more.
Tariffs have posed challenges to the industry as well. Aluminum, used in both solar panel frames and racking systems, are hit with 25% tariffs. Solar cell and module import tariffs from major global suppliers have come in higher-than-expected this year, too.
The residential solar industry is no stranger to highs and lows, often referred to as the “solar coaster” by those who have weathered the storm of hot-and-cold policies that create markets and then take them away at a breakneck pace. But the latest draft of the federal reconciliation bill may represent a crash.
In 2022, the Biden administration passed the Inflation Reduction Act, extending a tax credit that covers 30% of installed system costs through the mid-2030s. The latest One Big Beautiful Bill Act draft forwarded by the Senate Finance Committee ends this tax credit far ahead of schedule.
First, the bill takes a notably anti-consumer and anti-ownership stance, cutting the 25D residential solar tax credit within 180 days of enactment, which is payable directly to homeowners that purchase solar via a loan or upfront cash purchase.
Second, the bill sunsets the 48E investment tax credit for all eligible technologies to 60% of its value by the end of 2026, 20% of its value by the end of 2027 and all projects beginning construction by 2028 are ineligible for the credit.
In a surprise to the industry, the bill singles out residential solar leases, making the ineligible altogether for the 48E investment tax credit.
This posed a shock to the investment community. Share prices of the largest residential solar provider Sunrun are down over 40% in the trading day following the latest draft of the One Big Beautiful Bill Act.
The bill is next headed to the Senate for a vote, with a simple majority needed to pass. Then, the bill must be reconciled with the House, with both chambers agreeing on an identical version for it to become voted into law.
Looking ahead, if the bill passes as-written, there will surely be a further retraction for US residential solar. The industry will need to find new ways to lower costs to thrive in a harsher regulatory environment.
One pathway is pursuing lower soft costs, or costs not tied to hardware. The Solar Energy Industries Association (SEIA) said over 65% of the cost to install residential solar is related to soft costs like paying sales teams, securing permits, grid connection costs, and more.
The United States may find a path forward by pursuing market conditions like Australia, where over 40% of homes in some regions have rooftop solar. Soft costs are far lower in the nation, and average residential solar installation cost was $0.80/W (USD 0.52/W), more than $2.00/W cheaper than both Canada and the US.
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I live in California where NEM3.0 was the catalyst for reducing Rooftop Solar Sales in the largest “Rooftop Solar market” at the time. Texas has become the largest ever since, but a lot of those Texas sales are driving by the Federal Tax Credit incentives. When the “Tax incentives” and getting substantial credits for unused energy, that is put back on the grid, like The CPUC has done in California, what is left to provide incentives for the homeowner making such a large investment?
The Answer: The high cost of utility supplied electricity, and the high cost of utility supplied natural Gas. In California the Pacific Gas and Electric Company (PG&E) has raised the prices so high that 50 cent per kilo watt hour for electricity makes the Rooftop Generating average cost for electricity at 12 to 14 cents per kilo watt hour, with Zero incentives other than “utility costs”, a bargain. On sunny winter days, I could turn off my gas furnace, during the day, and run electric heaters saving on my gas bill and in the summer, use all my electricity on air conditioning cooling my home rather than lining the pockets of utility shareholders’ and CEOs. All year long running heavy use appliances, like electric dryers, from 10:00 AM to 3:00 PM were all the electricity is used in my home costing 12 cents rather than 50 cents adds up.
The Solar industry will need to concentrate on states where utilities have very high Electrical rates to make the financial incentives for Rooftop Solar to work. Top heavy companies that have 30 people working in the office depending on 4 people in the field doing installations and repairs will need to go. Tesla Solar Roofs is such a company where the overhead in Las Vegas exceeds the value of the product. (I owned one). Roofing companies, that also do rooftop solar, have the best chance of surviving since they do not depend on just one product.
Back in the 1970, Rooftop solar hot water was all the rage because California had a Tax credit for homeowners buying and installing it. Dozens of companies popped up until the tax credit ended and then they all filed bankruptcy on the same day, and no one was left to do the repairs. The price of natural gas came down and most rooftop units were removed when the next replacement roof was needed and never replaced. If cheap commercial wind and solar with battery storage can take over during the next 25 years, so Rooftop Photo Voltaic Systems become less cost effective, the Residential Rooftop Solar may also fade into history. But knowing the privately owned utilities, they will just keep the costs up and Rooftop solar will still be there as a choice for homeowners.