The solar industry is facing a critical juncture, with a mad dash to install panels before tax credits expire. This is a story of resilience and adaptation, but also of the challenges that lie ahead.
Ed Murray, a veteran in the solar business, recalls the dark days of 1985 when President Reagan's decision to end solar tax credits led to a devastating impact on the industry. The trade group he now leads, the California Solar & Storage Association, saw its membership plummet from 670 companies to just 37 overnight. Murray hopes history doesn't repeat itself.
Since then, the industry has experienced a remarkable resurgence, thanks in part to Congress reinstating a federal solar tax credit in 2005. This move was aimed at reducing America's reliance on foreign energy sources and promoting renewable energy adoption. However, the current situation is far from stable.
The One Big Beautiful Bill Act, introduced by Donald Trump, has set the tax credit to expire at the end of 2025. Home solar companies are now facing a cliff, with installers rushing to complete projects before the credit disappears. Murray describes it as a 'mad rush' and a 'crazy' situation.
The 2005 Energy Policy Act reestablished the solar federal tax credit, and the 2022 Inflation Reduction Act (IRA) expanded and extended it until 2035. This provided a 30% income tax credit for residential solar installations. However, the Trump administration's actions have taken a toll on the IRA, with the Republican-controlled Congress voting to wind down the home solar tax credit by the end of the year.
This decision has led to a surge in demand, with customers rushing to install home solar systems. EnergySage, a US solar marketplace, reported a 205% increase in homeowner inquiries after the Republican spending bill passed in July. Solar companies are now facing significant challenges, including longer lead times for permits and increased overhead costs.
The biggest barrier to the industry's goal of driving costs down to about $2 per watt has been slow permitting processes across the nation. These delays not only increase costs for companies but also jeopardize customers' ability to qualify for the federal tax credit. Vital Energy Solutions, a California-based company, has seen the lead time to secure a permit double since August, with its director of sales and marketing, Kevin McGuire, describing the permitting offices as 'totally overwhelmed'.
Rising costs and holdups in procuring key equipment, exacerbated by Trump's tariff regime, have further hindered the industry. Two major solar panel suppliers, QCells and REC, have faced their own challenges, with QCells furloughing workers and REC experiencing a fire at its Singapore factory, causing delivery delays.
To survive the loss of the tax credit, installers are exploring diversification. Some are considering offering roofing and HVAC services, or installing heat pumps and EV chargers. The focus is shifting towards commercial installations, which are eligible for a commercial tax credit until 2028. However, smaller installers may face a tougher road ahead.
Despite the challenges, industry leaders remain optimistic. They expect rising electricity rates, particularly in areas with new data centers, to drive demand for home solar systems. More frequent power outages during extreme weather and wildfire seasons are also increasing the need for residential systems with batteries. The industry has adapted to regulatory shifts in the past, and leaders believe it will do so again.
One potential beneficiary of the loss of tax credits is the 'third-party ownership' model, where customers can lease or enter into power purchase agreements (PPAs) with solar companies. This model has swung between popularity and decline over the years, but with the Republican spending bill preserving the solar tax credit for commercial projects, it may see a resurgence.
Companies like Sunrun, which offers power purchase agreements through subscription plans, have successfully lobbied for these protections. Sunrun's stock has seen a significant increase, and the company expects to gain more market share next year. Ipsun Solar, another company offering both purchase and lease options, also expects to sell more TPOs in the coming year.
While the loss of the federal tax credit is a blow to the industry, it has also driven the creation of new third-party ownership options with more favorable terms. Emily Walker from EnergySage sees this as a silver lining, even though the bill cutting clean energy tax credits is largely negative for the solar industry.
Ed Murray's advice to his peers is to save their money and hope for a regime change in the midterm elections, which could bring back some form of tax credit. The solar business, he says, is a tough one, but the industry's resilience and adaptability give reason for optimism.
