One big bad bill for solar projects

The U.S. solar industry is grappling with heavy changes to energy industrial policy, as federal legislation removes incentives that were designed to accelerate the transition to renewables.

On the campaign trail, President Donald Trump voiced support for an “all the above” approach to energy policy. However, the second Trump administration and the Republican-led Congress have come down hard on solar, wind, and electric vehicles via Congressional budget changes and executive actions.

Chief among the changes within the OBBBA are the early phase-outs of the 48E Investment Tax Credit (ITC) and 45Y Production Tax Credit (PTC). Both credits are demand-side incentives that have been instrumental in speeding up the energy transition.

The early loss of tax credits is expected to deal long-term damage to the industry. Wood Mackenzie forecasts that 10-year installations could decrease 17%, reaching volumes as low as 375 GW.

Crunch time

Following a predicted boom to meet deadlines for accessing the PTC and ITC, U.S. clean-energy installations could plunge 41% after 2027, according to a forecast from BloombergNEF (BNEF).

Previously, the 48E and 45Y tax credits were to be available to projects until the United States achieved a 75% reduction in greenhouse gas emissions from 2022 levels. These credits were made available via the Inflation Reduction Act (IRA) of 2022.

Now, under the OBBBA, solar and wind projects that begin construction more than 12 months after the July 4 enactment must be “placed in service,” meaning reaching commercial operations, by Dec. 31, 2027, to qualify for credits.

Projects that begin construction within 12 months of enactment can be eligible for tax credits if a “substantial portion” is built. These projects are “safe harbored” and can gain the tax credit if they are placed in service by mid-2030.

“Solar installations are expected to increase in 2025-26 as developers rush to meet deadlines,” said Wood Mackenzie. “Permitted projects are well-positioned, but unpermitted developments face growing uncertainty as permitting bottlenecks threaten to push completion dates outside eligibility windows.”

Keith Martin, partner at Norton Rose Fulbright, said projects will likely need to “incur” at least 5% of their cost to qualify for safe harbor designation. “Costs are usually incurred only as the developer takes delivery of equipment or services, with one exception. A payment for specific equipment or services by the deadline counts if delivery is reasonably expected within 3.5 months. There are nuances about counting payments for services,” said Martin.

The other path to qualification, he said, is to start “physical work of a significant nature” at a project site on portions of an installation eligible for the 48E credit.

“In the short term, we’re all going to be extremely busy trying to get projects going at the outset of July 4, 2026,” said Martin, appearing on the “Currents” podcast hosted by law firm Norton Rose Fulbright. “After that, I think people will have their heads down trying to develop and build these projects, finance them. There’ll be a distant place and service date for those.”

“So I think we’ll do fine,” said Martin. “Eventually there will be a new administration. Maybe people will be more concerned about climate change. We’ve seen this play before. These tax credits started in 1992 and they have expired, been restored, expired, been restored. So it’s perfectly possible we’ll see that again.”

The storm is surely in sight. In July, shortly following passage of OBBBA, New Leaf Energy, a community and utility-scale project developer, laid off about one-fifth of its workforce – 41 out of 217 employees. “The pathway to developing clean energy projects has narrowed, but it has not vanished; reducing the size of the company is intended to provide stability and free cash while the company adapts to a changed market for the long term,” said New Leaf Energy in a statement.

Unlike solar and wind, grid-scale energy storage will remain eligible for the ITC and PTC under its original schedule. The 48E and 45Y credits for storage projects will phase out by 25% each year starting in 2032 until Dec. 31, 2035, when the credits will expire entirely.

What’s more, projects are facing tightened restrictions on components and materials sourced from “Foreign Entities of Concern” (see pp. 10-12).

Residential pressure

The window is even tighter for residential solar. While lobbying was successful in preventing a near-instant phase-out of the 48E ITC, the 25D tax credit for residential solar projects, paid directly to individuals who purchase home solar with a loan or cash, is phased out for projects not installed by the end of 2025.

The cuts to credits come at a particularly hard time for U.S. residential solar. Installations declined 31% in 2024, according to Wood Mackenzie. Over the last year, industry titans like SunPower, Sunnova, and Mosaic Solar have filed for bankruptcy. The industry historically has leaned on the value proposition of lowering customer electricity bills and providing predictable costs for the long term. However, that value has been increasingly difficult to provide.

Gone are the days of low interest rates enabling attractive finance terms for loans or leased systems. In many major markets, such as California, net metering rates for sending excess electricity to the grid have been slashed by 75% or more. One pathway to continuing to drive customer value is pursuing lower soft costs – expenses not tied to hardware.

The Solar Energy Industries Association (SEIA) said more than 65% of the cost to install residential solar is related to soft costs like paying sales teams, securing permits, and grid connection costs. The United States may find a path forward by pursuing market conditions like Australia, where over 40% of homes in some regions have rooftop solar. Soft costs are far lower in the nation, with an average residential solar installation cost of AUD 0.89/W ($0.58), according to a January 2025 report from price comparison website Compare the Market – more than AUD 2.00/W cheaper than in both Canada and the United States.

Underlying strength

Since long-term federal tax credits were enacted by the IRA, about 80% of investment announcements were in Republican-led districts. More than 224 projects totaling nearly $110 billion in investment and leading to more than 83,000 jobs were announced in Republican voting districts, according to E2. Even before the OBBBA was passed, the looming threat of cuts led to billions of dollars in project and factory cancellations and the loss of tens of thousands of expected or existing jobs in these districts.

However, the fundamentals for solar remain strong. Analysis by financial advisory Lazard found that solar levelized cost of electricity beats the lowest-cost fossil fuel for new-build projects, even without tax credits. Solar represented 78% of new capacity added to the grid in 2025 through April, according to Federal Energy Regulatory Commission data. With electricity demand expected to rise 2% per year and 50% cumulatively by 2050, according to the National Electrical Manufacturers Association, demand for projects that can be added to the grid quickly will remain robust.

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