U.S. Residential Solar Faces Collapse Amid Policy Shifts And Market Pressures

Recently, the residential solar energy industry in the United States may be on the brink of collapse. Faced with macroeconomic challenges and changes in state and federal policies, the US residential solar market is rapidly declining, and the latest draft of the Great Beauty Act is making the market even worse.

 

The latest draft of the bill is unfavorable for clean energy, with particularly severe damage to household photovoltaics, and the reduction of federal tax credits taking longer than expected.

 

In 2024, residential solar installations in the United States decreased by 31%. In the past year, industry giants such as SunPower, Sunnova, and Mosaic Solar have all filed for bankruptcy.

 

The industry has always relied on the value proposition of reducing customer electricity bills and providing predictable long-term costs, however, this value is becoming increasingly difficult to provide.

 

The days when low interest rates provided attractive terms for loan or leasing systems are gone forever. In many major markets, such as California, the billing credit rates for delivering excess electricity to the grid have been reduced by 75% or more.

 

Tariffs have also brought challenges to the industry. Aluminum used for solar panel frames and shelving systems is subject to a 25% tariff. This year, import tariffs on solar cells and modules from major global suppliers have also been higher than expected.

 

The residential solar energy industry is not unfamiliar with highs and lows, and those who have experienced the storm of hot and cold policies often refer to it as a 'solar roller coaster'. They have withstood the storm, these policies have created the market, and taken it away at an extremely fast pace. But the latest draft of the federal reconciliation bill may represent a collapse.

 

In 2022, the Biden administration passed the Inflation Reduction Act, which extended the tax credit covering 30% of installed system costs until the mid-2030s. The latest One Big Beautiful bill draft submitted by the Senate Finance Committee has prematurely ended this tax credit.

 

Firstly, the bill takes a clear anti consumer and anti ownership stance, reducing the 25D residential solar tax credit within 180 days of its enactment, which is directly paid to homeowners who purchase solar energy through loans or prepaid cash.

 

Secondly, the bill will reduce the 48E investment tax credit for all eligible technologies to 60% of their value by the end of 2026, to 20% of their value by the end of 2027, and all projects constructed by 2028 will not be eligible for this credit.

 

Surprisingly, the bill lists residential solar leasing separately, making it completely ineligible for the 48E investment tax credit.

This has shocked the investment community, as Sunrun, the largest residential solar supplier, saw its stock price drop by over 40% in the trading days following the release of the latest draft of the 'One Great Beauty Act'.

 

The bill will be submitted to the Senate for a vote and requires a majority of votes to pass. Then, the bill must be reconciled with the House of Representatives, and both houses must reach a consensus on the same version before it can be voted into law.

 

Looking ahead, if the bill is passed as scheduled, household solar energy in the United States is sure to further decline. The industry needs to find new ways to reduce costs in order to develop in a more stringent regulatory environment.

 

One approach is to pursue lower soft costs. The Solar Energy Industry Association (SEIA) states that over 65% of the cost of installing residential solar energy is related to soft costs, such as paying sales team fees, obtaining licenses, and grid connection costs.

 

The United States can find a way forward by pursuing market conditions such as Australia, where over 40% of households in some regions have rooftop solar energy. The soft cost in the United States is much lower, with an average residential solar installation cost of $0.89 per watt, which is more than $2 cheaper per watt than Canada and the United States.