Residential solar is in a funk, and things may get worse. Residential solar leasing providers are not included in the “One Big Beautiful Bill Act” current draft, a surprise to the sector.
The shaky U.S. residential solar industry may be headed for collapse. A sector once typified by double-digit growth in installations is seeing sharp decreases, facing macroeconomic headwinds and the changing sands of state and federal legislation. And the current draft of the One Big Beautiful Bill Act makes matters even worse.
The newest version of the plan is negative for renewable energy overall, but especially for household solar, which would see federal tax subsidies eliminated significantly earlier than projected.
Industry Bankruptcies and Declining Installations
Residential solar installations fell 31% in 2024. Over the last year, industry giants like SunPower, Sunnova and Mosaic Solar have filed for bankruptcy.
The industry’s value proposition has been about decreasing power prices for customers and delivering predictability in costs for the long term. But it has been harder and harder to provide that number.
Gone are the days of cheap interest rates, which made loans or leased systems an enticing proposition. Rates for bill credits for transferring extra power to the grid have been cut by 75% or more in several major markets, including California.
The industry has also struggled with tariffs. The tariffs include 25% tariffs on aluminum used in solar panel frames and racking systems. Tariffs on imports of solar cells and modules from key worldwide producers also have been higher than projected this year.
Federal Tax Credit Changes Threaten the Sector
The home solar sector is no stranger to the ups and downs, the “solar coaster” as it’s known to those who have weathered the storm of hot-and-cold regulations that create markets and then tear them away at a fast rate. But the new draft of the federal reconciliation bill may be a wreck.
The Biden Administration approved the Inflation Reduction Act in 2022, providing a tax credit that pays 30% of installed system expenses into the mid-2030s. The latest draft of the One Big Beautiful Bill Act by the Senate Finance Committee kills this tax credit well before it is due to expire.
First, the law is decidedly anti-consumer and anti-ownership, slashing the 25D residential solar tax credit within 180 days of implementation, which is paid directly to homeowners who buy solar via a loan or upfront cash purchase.
Second, the measure sunsets the 48E investment tax credit for all qualifying technologies to 60% of its value by the end of 2026, 20% of its value by the end of 2027, and all projects starting construction by 2028 are ineligible for the credit.
The law, a surprise to the sector, specifically targets residential solar leasing, rendering them ineligible for the 48E investment tax credit.
This surprised the investing community. Shares of top residential solar provider Sunrun are down 40+% intraday on the newest draft of the One Big Beautiful Bill Act.
The measure now heads to the Senate for a vote that requires a simple majority to succeed. Then the bill has to be reconciled with the House, and both chambers have to agree to a version of it that’s the same before it can be voted into law.
Finding a Path Forward Through Soft Cost Reduction
Moving forward, if the measure passes as-written, there will definitely be a further retreat for U.S. home solar. The industry needs to find new ways to save costs in order to survive in a more stringent regulatory environment.
One is to work on lowering soft expenses, or those that are not related to hardware. According to the Solar Energy Industries Association (SEIA), more than 65% of the cost to install residential solar is tied to soft expenditures such as hiring sales teams, acquiring permits, grid connection charges, and more.
He said the United States may find a way ahead by looking at market circumstances like those in Australia, where rooftop solar is more than 40% in certain areas. The country has much lower soft costs, with the average household solar installation costing $0.89 per W, more than $2.00 per W less than both Canada and the United States.
