The U.S. solar market is entering a “transition year” in 2026 as the industry grapples with the shift toward tax credit transfers and 48E technology-neutral credits, said Roth Capital Partners in an industry note. While the firm maintains that utility-scale solar has a longer lead time to navigate these hurdles, the residential segment is facing immediate pressure, with Roth officially projecting a 33% year-over-year volume decline for U.S. residential solar in 2026.
The challenge stems from capital flows slowing as monetizing tax credits becomes increasingly difficult due to Foreign Entity of Concern (FEOC) uncertainty, said Roth Capital Partners.
The firm noted that a number of banks historically active in the space are now “pens down” when it comes to 48E investment tax credits. The trend is driven by a fundamental aversion to the “compliance burden” associated with FEOC rules, said Roth.
Banks appear unwilling to “go through the brain damage” of dealing with 48E projects when traditional Section 48 deals remain plentiful, said Roth Capital Partners.
The risk could require publicly traded banks to prove that less than 15% of their debt is owned by a Prohibited Foreign Entity (PFE). While developers can pivot to Tier 2 or regional banks, these alternatives are likely to be 100 basis points more expensive, the firm noted.
The credit tightening is already manifesting in the residential installer landscape. GoodLeap has reportedly implemented price increases of approximately $1/W and halted originations in Florida and Texas, said Roth Capital Partners. The firm also highlighted significant volatility among major EPCs:
- LGCY Power: The large residential sales and EPC organization reportedly laid off 40% of its staff recently and may be exiting the Texas and Illinois markets, said Roth Capital Partners.
- Freedom Forever: While previous reports suggested steeper cuts, management indicated to the firm that the recent workforce reduction was less than 6%, driven by AI automation.
- Legal Challenges: Freedom Forever has reportedly neglected to make installment payments in a legal settlement against Sunder Energy and may now be in default on a $4 million obligation, said Roth Capital Partners.
Despite the headwinds, Sunrun (RUN) is expected to meaningfully outperform its private third-party owned (TPO) peers due to its sophisticated handling of the tax equity market, said Roth Capital Partners. Similarly, the firm noted that the Propel program appears to have the capital depth to ramp volumes in a healthy way, which remains a positive signal for Enphase (ENPH).
Regarding project timelines, the firm believes that projects with a clear connection to AI/datacenter demand or those utilizing high levels of domestic content will likely receive priority as they move through the federal permitting process.
However, for the broader market, if Treasury guidance on PFE takes too long to materialize, the current capital slowdown may begin to impact utility-scale projects slated for 2027 and 2028, said Roth Capital Partners.
This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact: editors@pv-magazine.com.
By submitting this form you agree to pv magazine using your data for the purposes of publishing your comment.
Your personal data will only be disclosed or otherwise transmitted to third parties for the purposes of spam filtering or if this is necessary for technical maintenance of the website. Any other transfer to third parties will not take place unless this is justified on the basis of applicable data protection regulations or if pv magazine is legally obliged to do so.
You may revoke this consent at any time with effect for the future, in which case your personal data will be deleted immediately. Otherwise, your data will be deleted if pv magazine has processed your request or the purpose of data storage is fulfilled.
Further information on data privacy can be found in our Data Protection Policy.