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:
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Freedom Forever: Management indicated that is had a recent workforce reduction less than 6%. Management said the reduction was driven by AI automation, sees the move as a positive, and does not think it will diminish any of its capacity with the additional benefit of increased margin. The company now believes it is in a better position as the team can now be “faster and better after the reductions.”
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LGCY Power: The company reduced its number of U.S. employees, but management has hired hundreds of overseas employees resulting in a positive net staff gain and has integrated AI deeply into workflows to drive substantial efficiencies and cost reductions. Additionally, while Roth initially suggested the company may be pulling out of Texas and Illinois, management stated that LGCY remains active in both states, though operations may have been downsized.
- 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 article has been amended to reflect corrections made by Roth Capital Partners to its initial industry note. The corrections are related to the two bullet points about LGCY Power and Freedom Forever staffing and areas of operation.
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Residential solar implementation may measurably change upward with the advent of balcony solar. Removing the soft costs, even at the modest 1.2kW level could have a widespread impact. Quiet lobbying, overt lobbying, covert lobbying by the electrical utilities might not play well in state legislatures in an election year.
IF and only IF the states get off their Ass and approve it – omg, only Utah until recent VA, what’s wrong w all these other guys? Yes it’s only 800 -1200 thus only makes a dent in individual monthly bill but it can make a big difference to the state accross many deployments and it’s easy/portable to the homeowner- I want two ! (Have 2 houses).
As an outsider (AKA Homeowner) I’ve always believed that the whole home solar industry/business inflated the market pricing because they knew that the government would pick up the slack with a boatload of grants, abatements and incentives.
Why use realistic prices, when I know the government will subsidize whatever price I make up?
The banks know that these companies are not going to back off the precipice of price gouging and have backed out while the getting is good.
They’ve already made their money off the government, early adopters and unaware citizens.
Hopefully the prices drop to affordable levels, if not, it will be the end for this fantastic technology.
Jack has a point I have some agreement with, however competition “should” have minimized that. I.e if gouging vendor 1 offers a 30k price w high margins anticipating the rebate gets it down for buyer, vendor b can still go propose $25k and win the deal regardless of subsidy.
What we need is both cheaper panels that are blocked w tarriffs ( thanks gov) and new less labor intensive form factors and install methods.
Maybe Trump’s war on Iran and closure of the Straights of Hormuz as a result will provide a boost to solar as global LPG prices rise.
I’m a solar fan with 9 kw on my barn for over 10 yrs. I’m really disappointed in us solar installers. Too expensive! Perhaps it’s the tax credit that led to such high prices for installation of rooftop solar. Look to the Australians who install solar for much less. Reportedly a lot of the US added cost are soft costs – marketing and permitting. If we’re going to expand rooftop solar installations these costs have to come down
I agree, labor here is extremely expensive!! Do it yourself it’s the way to go, but not everyone can take that route