Over the past two decades, more than 5 million U.S. households from California to Georgia to Maine have put solar panels on their roofs, drawing energy from the sun and reducing their electric bills.
But that could soon come to a crashing halt.
The big domestic policy bill passed by House Republicans last month would, by the end of this year, eliminate tax credits for homeowners and solar leasing companies that have fueled the popularity of rooftop solar. If it becomes law, it would lead to an immediate plunge in installations, analysts and companies say.
“This sets us back,” said Ben Airth, policy director for Freedom Forever, one of the country’s largest residential solar installers. “I’ve been in this industry 22 years and remember when it was only rich people, doomsday preppers and environmentalists installing solar panels on their roofs.”
One analysis by Ohm Analytics, an energy data firm, estimates that residential solar installations could fall by half next year if the House bill becomes law. Without the tax credits, it would take 17 years, on average, for homeowners to earn back their solar investments. A more pessimistic analysis by Morgan Stanley projects that rooftop solar demand could fall by 85 percent through 2030.
While Republicans want to curb tax breaks for other renewable energy technologies like wind turbines and large-scale solar farms, the consequences for rooftop solar could be more severe. Rooftop solar can cost two to three times as much per unit of electricity as large solar arrays on farms or in deserts, and the residential industry is more vulnerable to shifts in subsidies.
The Senate is now writing its version of the domestic policy bill, and solar executives have descended on Washington to plead for a more gradual wind-down of the energy credits. They note that the solar industry employs roughly 300,000 workers and that rooftop systems can help homeowners cut their electric bills.
Yet some conservative Republicans have made clear they oppose any restoration of tax breaks for renewable energy.
“Those God forsaken subsidies are killing our energy, killing our grid, making us weaker, destroying our landscape, undermining our freedom,” Representative Chip Roy, Republican of Texas, said on the House floor last week. “I’m not going to have it.”
The uncertainty is upending an industry that was already struggling with tariffs and high interest rates. Last week, Solar Mosaic, which provided loans to homeowners to install rooftop panels, declared bankruptcy. On Monday, Sunnova Energy, one of the nation’s largest rooftop solar companies, followed suit.
Some experts say rooftop solar will eventually rebound, even without subsidies, if electricity prices keep rising around the country, which would make the economics of going solar more favorable. But the adjustment period is likely to be painful, with more bankruptcies and layoffs.
“We’re not expecting residential solar to go away,” said Zoë Gaston, a principal analyst for residential solar at Wood MacKenzie, an energy research firm. “But it will be smaller.”
Major tax changes
For two decades, Congress has offered tax breaks for people who put solar panels on their roofs. But Democrats supersized those subsidies in the 2022 Inflation Reduction Act, which plowed hundreds of billions of dollars into technologies meant to fight climate change.
The law extended the residential solar credit, which allows homeowners to recoup 30 percent of the cost of a solar system they own, through 2032. It also expanded an investment tax credit for companies that build low-emissions sources of electricity like solar and batteries.
The latter change fueled a boom in solar leasing, in which homeowners don’t have to pay the upfront cost of a rooftop solar system that can run $30,000 or more. Instead, a company owns the panels and keeps the tax credits. The homeowner leases the equipment from the company and ideally, saves money through lower energy bills.
More than 50 percent of home solar systems are now financed this way, and the rise of leasing has made rooftop solar more accessible to less-wealthy households, as well as to schools, hospitals and small businesses.
The House Republican bill would terminate the residential solar tax credit by the end of 2025. And, in a last-minute change pushed by fiscal conservatives, solar leasing companies would be immediately ineligible for the investment tax credit.
The House bill would also forbid companies from claiming the tax credits if they use components from China, which dominates solar supply chains. Because that provision is so broadly written, many companies say it would effectively make the credits unusable.
“Catastrophic is a fair way to describe the industry impact” of the House bill, said Gregg Felton, chief executive of Altus Power, which develops solar projects on rooftops and parking lots.
If Congress slashed support for renewable energy, experts said companies would continue investing in large-scale solar arrays, since even without subsidies those plants are often one of the cheapest ways to generate additional electrons. Rooftop solar, which is costlier and requires more labor, faces greater risks.
Kenny Pfannenstiel, the chief operating officer at Big Dog Solar, an Idaho-based solar installation company, said that rooftop solar has lately grown popular in newer markets like Montana and Idaho.
“We see a lot of interest from people who want to control their own energy future, or who worry about the grid being available when they need it,” Mr. Pfannenstiel said. Once the tax credits were expanded, he said, “the economic argument for those customers to install solar and battery systems became a lot stronger.”
If the credits vanished, some customers might still want panels, he said, but the market “would shrink drastically.”
The ripple effects could be significant. If solar leasing companies go bankrupt, customers could be left in the lurch, with no one left to service their panels. Thousands of installers and electricians would find themselves out of work.
More than three dozen solar factories have opened in the United States in recent years, but some could shutter if demand slows.
Freedom Forever, the California-based solar installer, says that two years ago none of its equipment was sourced from the United States; today, roughly 85 percent is, including inverters made in Texas and Florida. That’s partly because of provisions in the Inflation Reduction Act that provided a bonus credit for using domestic components.
If the credits go away, “the industry will just go back to using the cheapest modules, which are typically made overseas,” Mr. Airth, the company’s policy director, said.
A debate over rooftop solar
The fight over tax credits in Congress isn’t the only challenge facing rooftop solar. While the technology remains popular with homeowners, some states have started pulling back support amid a barrage of criticism.
Electric utilities and some analysts say that rooftop solar users raise costs for everyone else, because solar households pay less on their monthly utility bills but still rely on the broader grid for backup power. That shifts the cost of maintaining the grid to other households, which are often low-income. (Solar proponents disagree, saying that utilities ignore many benefits of rooftop panels, such as avoided transmission costs.)
The fight has been especially fierce in California, the country’s biggest rooftop solar market. In 2022, regulators slashed the compensation that new solar households could receive for the electricity they produce. In the months that followed, rooftop installations fell 85 percent statewide, straining installers, manufacturers and distributors.
Even now, some officials are looking to cut support further, including for existing homes. “We have to re-evaluate how our current solar subsidy programs impact Californians who may not be able to afford solar-panel systems,” said Lisa Calderon, a Democratic state lawmaker.
The rise in interest rates has further squeezed the rooftop solar industry, by making it more expensive to borrow money to finance new installations. The Trump and Biden administrations also increased tariffs on solar components from China, which aids domestic manufacturers but makes panels more expensive.
Some in the rooftop solar industry say they have to focus on cutting costs.
Not only are rooftop systems more expensive than large utility-scale solar farms, but the cost of a home solar system in the United States can be three times the cost of a comparable system in Australia. Some analysts blame differences in permitting processes.
“At some point our industry can and should be able to function without tax credits,” said Chris Hopper, co-founder of Aurora Solar, a software company that designs home solar systems. “I do think we could get on board with a phase-down of these credits over an appropriate time period that gives us time to figure out how to find efficiencies and lower costs.”
“But an overnight change would be devastating,” Mr. Hopper said. “It’s just not possible to adapt that quickly.”
Ivan Penn contributed reporting
