At the end of this year, the residential solar tax credit that has knocked 30% off consumer solar costs for nearly two decades, will abruptly disappear.
The impacts will be felt immediately. According to data from Energy Sage, 64% of small installers expect the change to “dramatically harm” their business. More than a quarter say they’ll pivot away from solar entirely. Industry associations warn the sector could lose nearly 300,000 jobs by the end of next year. Some states will end up with payback periods as high as 20 years, essentially cutting them out of the market.
Rooftop solar has weathered policy whiplash before of course: in 2016 with the scheduled ITC cliff, for example, and in 2023, California’s net metering overhaul. What’s different now, though, is the context of rapid AI-driven load growth, and an administration that appears bent on destroying the industry altogether. But solar power is still the cheapest, fastest way to build electricity — and it isn’t going anywhere.
Separating rooftop solar from its longstanding reliance on federal support, including the 25D tax credit, will require bringing costs down significantly. Surviving the transition and capitalizing on the industry’s future, experts from around the sector told Latitude Media, will require some creativity with business models, and an evolution in industry leadership.
Jigar Shah, a renewable energy entrepreneur and investor who led the Department of Energy’s Loan Programs Office under the Biden administration, said the residential solar industry has so far failed to take its fate into its own hands — and has a fundamental challenge to tackle before anything else.
“One of the things that we need to do is to justify the residential solar industry as a whole,” Shah explained. The at-scale value propositions for utility-scale solar and commercial and industrial solar are relatively clear, he added: “But residential solar hasn’t actually done the work to convince people that they really can provide services to the utility.”
As far as what that could look like, Shah said industry organizations should be working with utilities to get batteries deployed, and with residential solar customers compensated for contributing to the grid on a large scale — in other words, double down on virtual power plants, something the Department of Energy and LPO in particular focused on in the last administration.
“In general [the residential solar industry] is just shell-shocked,” Shah added. “They’re like, ‘I don’t know what the future of our industry is, but I wish it was the same as yesterday.’ And I’m like, well, it’s not the same as yesterday!”
Cost reduction roadmap
Residential solar in the United States remains significantly more expensive than in most other parts of the world: at $5.20 per watt including batteries, the systems cost more than twice as much as in Australia, where the same systems cost $2.00 per watt. They’re also more expensive than in Germany and the United Kingdom, where they generally cost between $3 and $4 per watt.
Andrew Birch, former CEO of Sungevity, said there’s a clear path for U.S. residential solar to come down the cost curve.
“We’ve relied on the ITC too long, and we haven’t been forced to focus on the underlying cost problems,” explained Birch, who is now the CEO of OpenSolar, which offers cloud-based solar design software for installers.
The root cause of those problems, based on an analysis of real market data from OpenSolar’s platform, is America’s uniquely complex permitting and regulatory landscape. Installers in Australia and Europe can sell a system one day and install it the next, explained Birch, who is based in the U.K. In contrast, U.S. installers must navigate a multi-month process, navigating thousands of different jurisdictions, each with its own permitting process and electrical code interpretation. The result, he added, is that U.S. firms have twice as many staff on payroll, and face steep 30% cancellation rates.
Those dynamics lead to “a pretty gnarly, not-great customer experience,” Birch said. High costs, he added, also contribute to the fact that around 80% of U.S. solar is financed, compared to around 20% in the rest of the world.
We’ve relied on the ITC too long, and we haven’t been forced to focus on the underlying cost problems.
That’s partly why Sungevity went bankrupt in 2017, he added: The company was caught in a liquidity crisis after a $200 million reverse merger with a special purpose acquisition company fell through amid policy uncertainty created by the 2016 presidential election. Sungevity’s asset-light business model couldn’t sustain the cash burn, and was ultimately forced to file for bankruptcy protection.
Birch estimates that automating permitting could reduce soft costs from 54 cents to 6 cents per watt, while also cutting overhead from 74 cents to 37 cents per watt, by eliminating the trucks, staff, and office space needed to manage the permitting process. That brings the $5.20 per watt cost down to $4.20
But he acknowledges that’s easier said than done. He also has a proposed solution, in the form of the tech-based nonprofit SolarAPP Foundation, which he founded. In jurisdictions that have adopted SolarAPP, installers can fill out a digitized permit form in as little as an hour, and install the next day, just like in overseas markets. The app has already been adopted by 350 cities around the U.S., Birch said.
For installers operating in cities that have approved the use of SolarAPP, they should “absolutely change their business process,” he added, and remove overhead costs in the process. That could look like closing a sale remotely, doing the automated planning process, and only then installing. “If you’re in a city that doesn’t have SolarAPP, then you…should be putting pressure on our governor and state and mayor and building department to say ‘please adopt this,’” he said.
Additional cost reductions could come from right-sizing battery systems: dropping from the current seven kilowatt average to 4.5 kW would bring down the price of the average system by as much as 70 cents, Birch explained. That smaller capacity would still be enough for most people’s needs.
Finally, he thinks companies should generally get more tech-savvy, using sales tools to design and sell remotely, and increase sales conversion.
“Overseas we do not have this situation where you have a sales team separate from the installation company,” Birch explained. “In the U.S., a third of rooftop solar is sold by someone other than the contractor,” which adds quite a lot of cost to a system.
Business model creativity
The end of the direct tax credit for residential solar is likely to push the industry toward more sophisticated financing models and expanded service offerings. Most in the industry expect to see a retrenchment toward third-party ownership models, because under the “One Big Beautiful Bill” reconciliation legislation, 48E credits will remain available for lease and PPA providers through 2027.
One significant opportunity is in aggregated purchasing models, said Anya Schoolman, executive director of the nonprofit Solar United Neighbors. That organization has already been working through the logistics of such a setup, through what it calls “Switch Together” campaigns: group purchasing programs designed to make going solar more affordable for residential customers.
“Instead of each company spending between $1,000 and $3,000 on getting a customer, we aggregate the customers at a much lower cost,” Schoolman explained, adding that support from grants and municipalities brings the cost of a project down as much as 20%.
That model could scale rapidly in 2026, Schoolman said, as installers seek alternatives to expensive customer acquisition strategies. She also expects to see a move away from bespoke systems in favor of standard offerings — a setup similar to that used in the U.K, where customers can choose from preset configurations, which can help keep costs down.
Barry Cinnamon, a veteran installer in Silicon Valley, said many companies have already been implementing strategies to help policy-proof their businesses. His company, Cinnamon Energy Systems, has positioned itself not as “the solar guys” but rather as home electrification specialists, focusing on heat pumps, EV chargers, and other services alongside solar and storage systems.
Like many installers around the country, Cinnamon said his team is focused on maximizing cash flow for the rest of 2025. But when it comes to 2026, Cinnamon Energy is looking at an “all of the above” approach to cutting down the cost of systems. That’s because from a customer standpoint, the most important metric is the payback period, or the time it takes for energy savings to match the upfront cost of a system.
There are two key levers Cinnamon Energy will be focusing on to bring down the cost, and shorten that period: increased efficiency of both marketing and sales, and in equipment purchasing. The former might include adding in commercial lease or other third party owned financing options, Cinnamon said, which the company hasn’t offered in years.
Meanwhile, Shah argued that perhaps the most promising long-term opportunity for residential solar to prove its value is virtual power plants; he also sees VPPs as the natural evolution for the industry. At the same time the 25D credit is disappearing, utilities are facing unprecedented demand growth, and racing to figure out how to incorporate distributed energy resources at scale in order to support the grid.
The potential for VPPs is enormous: According to the updated “liftoff” report compiled by the DOE in January, VPPs could serve as much as 20% of peak electricity demand in the U.S. by 2030. (The liftoff reports were for months removed from the federal government’s websites, but on Friday they reappeared.) But despite the enthusiasm for VPPs during the Biden administration, and their clear value at a time of increasing pressure on the grid, the residential solar industry itself has been slow to embrace VPPs as their future, Shah said: “We’re already two VPP reports in. When are you guys gonna figure this out?”
Improve leadership and coordination
This dynamic, according to Shah, has created something of a leadership vacuum, leaving the industry vulnerable to organized opposition campaigns, and incapable of responding effectively to policy threats.
“I asked for four years straight…’what’s the plan? What resources do you need from DOE to help you achieve this plan? What is it that you think is going wrong, and how do we make it better?’” he said. “All the work we did on virtual power plants and DERs was done with zero support from the solar industry.”
In a post-25D landscape, the industry needs a demonstrative shift toward proactive state and local efforts, Shah said, particularly as they relate to solving problems like soft costs and VPP integration, as opposed to reactive defense of existing federal subsidies.
Shah and Birch both think that probably means the industry needs a representative group focused specifically on residential installers.
“Residential solar basically doesn’t have an industry representative,” Birch explained. “That’s 200,000 people, nearly four times the size of the coal industry, without an industry representative.”
The Solar Energy Industries Association has historically focused on utility-scale development and manufacturing rather than residential installation challenges, he added: “SEIA [does] fantastic work at the utility-scale level and for manufacturers, but their board members don’t want more solar behind the meter. [Residential is] a totally different beast because of fragmentation.”
There are several organizations that already work to fill the leadership gap Shah and Birch describe. Solar United Neighbors, for example, has been leading grassroot efforts to activate solar users themselves to push for faster permitting, fair pay for grid services, and wider community access.
“For most people in this sector, the states have always been a focus point, because that’s where energy policy is generally made,” Schoolman said. At a federal level the industry faces “intermittent opportunities or intermittent crises,” depending on the administration.
Federal activity gets most of the attention, but many states are also moving to shorten permitting times or exploring targeted incentives, with some lawmakers signaling their support for solar now that national subsidies are receding, she explained. In Florida, for example, lawmakers passed a bill in July requiring solar permits to be completed in five days.
Local constituent involvement is key for that type of win, Schoolman added, because legislators tend to respond more actively to stories about solar’s impact on household energy costs, resilience, and local economic development, as opposed to narratives about the broader industry.
This is especially relevant in a year where utilities are requesting record rate increases. In a moment when energy prices have become a political talking point, Schoolman does anticipate the debate will pick back up at a federal level this time around.
“There’s going to be a large effort [to blame OBBB] when there are shortages of energy and skyrocketing energy prices,” she said. “I think that would be justified. That’s going to be the federal focus through the midterms, certainly, to say ‘you took away our jobs, you raised rates, you created energy shortages.’”
Whether that messaging will have enough of an impact, though, “I couldn’t tell you.”
