Solar energy firms on U.S. rooftops are gearing up for a potential disaster
The US residential solar industry is bracing for a significant decline in installations in 2026, following the proposed elimination or major reduction of the 30% federal tax credit for residential solar systems. This financial incentive has been instrumental in making solar affordable for homeowners, but its phasing out or complete elimination, depending on the final legislative outcome, is expected to raise upfront costs and reduce demand.
The Senate recently passed a bill suggesting a reduction in the credit from 30% in 2025 to 18% in 2026, then to 6% in 2027, and completely eliminating it in 2028. However, the House proposes an outright elimination of the credit starting January 1, 2026. The final decision will be determined through reconciliation between these versions.
The removal or sharp reduction of the tax credit will likely lead to a slowdown in installations in 2026 compared to the 2024 level, when Freedom Forever, one of the country's leading rooftop solar installers, commanded 7% of the US market and experienced monthly sales hitting all-time highs. In 2025, homeowners who install solar can lock in substantial savings, averaging $9,000, making it a critical year for installations. Post-2025, without the credit or with a reduced credit, the cost-effectiveness and financial attractiveness of rooftop solar will diminish, discouraging new installations.
The elimination of the tax credit could force the surviving companies to drastically adjust their business models. Ben Airth, policy director at Freedom Forever, has stated that the plans to kill the tax credit by the end of the year would be a death sentence for much of the residential solar industry and would lead to major layoffs. The company, which employs nearly 500 people, may be forced to "shrink back to the size of a mom and pop" business if the tax credit is eliminated.
The degree of pain for solar installers will be significant if the tax credit disappears and capital becomes more expensive. In states where grid power is cheap and residential power purchase agreements aren't allowed, the market could be done. However, states with financing options other than direct system sales may still have viable options without the tax credit.
The Senate is expected to vote on a bill, known as the "One Big Beautiful Bill", that would scale back many tax benefits for clean energy, but hit rooftop solar especially hard. If approved, it could cause the amount of rooftop solar installed in the US to fall by more than half in 2026 compared with its 2024 level. The US residential solar industry, which was already facing challenges before its tax credits came under fire, with installations in 2024 falling 31% compared with the previous year, may contract back to where it was in 2005 if the tax credit elimination becomes law.
The situation for solar installers depends largely on how Wall Street views the industry's prospects. Two of the industry's biggest companies have already filed for bankruptcy this month. Freedom Forever's survival strategy will be to home in on only the most attractive markets. If the tax credit elimination becomes law, the industry will have to adapt and find new ways to make solar affordable for homeowners.
- The phasing out of the tax credit in the US residential solar industry could have a ripple effect in other sectors, potentially leading to adjustments in business models within the finance sector, as solar companies restructure to make solar energy still affordable for homeowners.
- The reduction and eventual elimination of the tax credit could impact the technology sector, as solar companies may need to focus on developing innovative solutions to offset the higher upfront costs without the financial incentive, making solar energy still competitive within the energy industry.
