U.S. Residential Solar Faces 33% Decline in 2026
The U.S. residential solar market is under a lot of pressure right now because tax credits are running out and FEOC challenges are growing.
As the industry deals with the move toward tax credit transfers and 48E technology-neutral credits, Roth Capital Partners says that 2026 will be a “transition year” for the U.S. solar market. The company says that utility-scale solar has a longer lead time to get through these problems, but the residential segment is feeling the pressure right away. Roth officially predicts that U.S. residential solar will drop by 33% year-over-year in 2026.
FEOC Uncertainty Slows Capital Flow
Roth Capital Partners said that the problem is that capital flows are slowing down because it is getting harder to turn tax credits into cash because of uncertainty about Foreign Entity of Concern (FEOC).
The company said that a number of banks that used to be active in the area are now “pens down” when it comes to 48E investment tax credits. Roth said that the trend is caused by a basic dislike of the “compliance burden” that comes with FEOC rules.
Roth Capital Partners said that banks don’t want to “go through the brain damage” of dealing with 48E projects when there are still a lot of traditional Section 48 deals.
The risk could mean that publicly traded banks have to show that less than 15% of their debt is held by a Prohibited Foreign Entity (PFE). Developers can switch to Tier 2 or regional banks, but the firm said these options are likely to cost 100 basis points more.
Impact on Residential Installers
The tightening of credit is already having an effect on the residential installer market. Roth Capital Partners says that GoodLeap has raised prices by about $1/W and stopped making new loans in Florida and Texas. The company also pointed out that major EPCs are very unstable:
Freedom Forever: Management said that the number of employees had gone down by less than 6% recently. Management said that the cut was made possible by AI automation. They see it as a good thing and don’t think it will hurt their ability to do business, since it will also increase their profit margin. The company thinks it is in a better place now that the team can be “faster and better after the cuts.”
LGCY Power: The company cut back on its U.S. staff, but management has hired hundreds of workers from other countries, which has led to a net increase in staff. The company has also integrated AI deeply into its workflows, which has led to big cost savings and increased efficiency. Also, Roth first said that the company might be leaving Texas and Illinois, but management said that LGCY is still doing business in both states, even though it may have cut back on some of its operations.
Legal Issues: Roth Capital Partners says that Freedom Forever has not made installment payments in a legal settlement with Sunder Energy and may now be in default on a $4 million obligation.
Market Outlook and Federal Priorities
Roth Capital Partners says that Sunrun (RUN) will do much better than its private third-party owned (TPO) peers, even though it is facing some headwinds. This is because Sunrun is very good at handling the tax equity market. The company also said that the Propel program seems to have enough capital to increase volumes in a healthy way, which is still a good sign for Enphase (ENPH).
The company thinks that projects that are clearly related to AI/datacenter demand or that use a lot of domestic content will probably get priority as they go through the federal permitting process.
Roth Capital Partners said that if Treasury guidance on PFE takes too long to come out, the current slowdown in capital may start to affect utility-scale projects planned for 2027 and 2028.
Roth Capital Partners has made changes to its initial industry note, and this article has been updated to reflect those changes. The changes have to do with the two bullet points about LGCY Power and Freedom Forever’s staff and where they work.
