Navigating the Phaseout: The Future of Solar Incentives Post-2025

Navigating the Phaseout: The Future of Solar Incentives Post-2025

On July 1, 2025, Congress passed the One Big Beautiful Bill Act (OBBBA), cementing a major policy shift for the U.S. solar industry. Among its provisions, the legislation accelerates the phaseout of the 30% Residential Clean Energy Credit, ending it on December 31, 2025, without renewal. This change,, marks the most significant alteration to residential solar economics in more than a decade.

For homeowners, solar developers, and policymakers, this is a defining moment. The federal solar tax credit has fueled record deployment, made rooftop solar affordable for millions of families, and helped build a resilient clean energy workforce. Now, as the industry approaches the edge of this incentive cliff, critical questions emerge: Can solar continue its growth without federal subsidies? How will project economics shift in a higher-cost environment? Can solar remain a tool for equitable energy access as the country moves toward electrification?

These questions come at a time when the solar sector is experiencing record-low generation costs, with Lazard reporting utility-scale solar PV costs tightening to $38–$78 per MWh, even before incentives are applied. Meanwhile, electrification trends and the explosive growth of artificial intelligence are reshaping energy demand, with Goldman Sachs projecting a 160% increase in power demand from data centers alone.

This shifting landscape raises critical stakes for energy affordability, climate targets, and economic resilience. For many families, the end of the credit could alter payback timelines, reducing the immediate appeal of rooftop solar. For the solar industry, it may drive a rush to complete installations before the sunset date, followed by a potential dip as the market recalibrates.

Yet, the solar sector’s progress is not solely dependent on tax credits. Technological advancements, creative financing models, and state-level incentives have already begun reshaping the landscape. Moreover, as noted by the Lawrence Berkeley National Laboratory, addressing the disparities in solar adoption across income levels remains a priority if clean energy is to be an equitable part of America’s future.

The phaseout of the federal solar tax credit is not merely a policy change. It is a test of the industry’s maturity, resilience, and ability to adapt in a rapidly changing energy environment. In the following sections, we will explore what is changing, why it matters, and how industry stakeholders, policymakers, and communities can navigate this transition while preserving momentum toward a cleaner, more affordable, and reliable energy system.

Why the Phaseout Matters

The phaseout of federal solar tax credits under the OBBBA is not merely a line-item change in federal policy. It will fundamentally alter the landscape of solar adoption, investment decisions, and the equity of clean energy access in the United States. While solar’s underlying competitiveness has improved, incentives have provided critical support for market acceleration, cost predictability, and customer confidence.

For example, a $25,000 rooftop residential solar system today nets a $7,500 federal tax credit and can cost an owner $17,500 after the tax credit is factored in. Without the 30% tax credit, that $7,500 in cost difference is added back to the effective cost overnight, slowing solar payback periods and the on-ramps to owning solar energy generation.

In the commercial and utility-scale solar space, the ITC, and also the bonus credits that are attached to the domestic content requirements and also energy community siting, are being accelerated, meaning that they will also have to sunset sooner.

The Rush and the Dip 

The first solar industry reaction we can expect to the credit’s announced expiration date will likely be a “pull-forward” rush of residential and commercial system installations in 2025 as customers, businesses, and property owners seek to “use it or lose it” and take advantage of the 30% benefit before it goes away. This sudden increase in demand can result in installation bottlenecks, supply chain strains, and bidding wars for contractor capacity in the latter half of 2025, as more and more interested parties attempt to take action on this deadline.

Past the December 31, 2025 deadline, we may also see a demand dip in the market as the urgency dissipates and would-be solar adopters reassess the economics and calculate project costs without federal-level incentives baked into the purchase. Industry players will have to anticipate this potential for a slump and prepare customer education and marketing plans, alternative financing products, and package services that can help the market stay interested, prequalified, and ready for moving forward on solar system purchases even when the tax credits no longer apply.

These changes are occurring amid a historic transformation of energy demand and supply in the U.S. Electrification trends, from the adoption of electric vehicles to heat pumps, are increasing electricity demand, while the rapid rise of AI and data center development is adding large, constant loads to the grid. Goldman Sachs projects a 160% increase in data center power demand driven by AI growth, underscoring the urgent need for scalable, clean energy solutions.

Potential Impacts on the Solar Market

The solar industry in the United States has become deeply entwined with the nation’s economic and climate policy goals, with solar modules now produced across more than a dozen states, solar employment figures consistently in the top ranks of clean energy sectors, and the electricity source regularly posting new records for its share of national energy consumption. Solar tax credits, especially, have been a key policy tool for aligning these pieces and supporting this growth. Despite coming to the end of their currently scheduled life, this incentive phaseout will not unwind solar’s many benefits or gains in cost competitiveness. Instead, a changing set of market forces will be at the forefront of differentiating projects, structuring financings, and driving the continued growth of distributed and utility-scale solar.

New Residential Trends in a Post-Incentive Era 

By now, most homeowners with the financial capacity and interest to do so have taken steps to equip their homes with rooftop solar. As of this writing, approximately 2 million homes have installed solar in the U.S., with another 700,000-plus panels in the ground at the end of Q2 2024 alone. When coupled with growing awareness of solar’s other value propositions, from resilience to improved home equity, the rapid adoption of rooftop solar should not be surprising. The declining cost of solar has played a nontrivial role in enabling this growth.

The incentive has generally followed a simple math equation that U.S. policymakers first built out during President George W. Bush’s tenure and have adjusted many times since. Reduce the project’s cost by a fixed percentage; a direct cut to one’s electricity bills by the same amount should be a no-brainer. 

States and localities have complemented this with incentives, from property tax abatements to small business grants, giving customers additional economic reasons to adopt solar and contributing to steep recent growth rates for the market overall. Taken together, these programs (especially in combination with decreasing project costs) have meant that installing solar would usually pay for itself from a bill perspective within several years. But without these incentives, the homeowner will face a higher cash or financed cost, though the overall payback in real terms, rather than on paper, remains unaffected.

Recent Solar Energy Industries Association analysis indicates smaller commercial projects, those between 50 kilowatts (kW) and 1 megawatt (MW), will feel an effect more than others. Larger commercial and utility-scale projects will be able to draw down on more considerable capital expenditure and access to capital markets to work through this transition. Incentives do, however, remain vital to keeping commercial solar interest from smaller businesses and those operating on thinner margins. These businesses may also lack access to tax equity structures to draw on, so the overall tax liability in any given market will be important to the market and financing options available.

Utility-Scale Deployment 

Absent federal tax credits, utility-scale solar projects will be faced with lower power purchase agreement (PPA) margins and will likely have to come in at lower prices to maintain this level of profitability, with possible trade-offs in project terms or other approaches to monetizing solar electricity to keep in line with their own longer-term contract goals. 

PPA spreads have tightened in recent years across many regional markets, and the ITC phaseout will put further downward pressure on pricing as the market heads into the phaseout period in earnest. Without the tax equity investment subsidy, fewer project developers will have access to tax equity markets to bring on project debt at an attractive interest rate, shifting more financial pressure onto the up-front balance sheets of the larger vertically integrated utilities to put these projects in place. The incoming limits on appetite for risk in tax equity from a number of larger financial institutions could compress tax equity returns, but at present at least, it does not seem like the market will feel this change immediately on the PPA level.

Opportunities in a Post-Incentive Landscape 

Financing and operational improvements, some of which have been covered in other Solar TODAY articles, will be the difference between smooth sailing or major disruption in a post-incentive market. Financing will be key, with creative strategies able to unlock access to residential solar for customers that will be priced out of the market when the incentive is no longer available. In its previous life, solar also was under more pressure to drive down soft costs, or non-hardware and non-labor costs, than perhaps it will be in the future.

Solar-plus-storage 

Solar-plus-storage, which will be even more important in the absence of the tax credit, was one of these specific financial product innovations that grew on tax equity, especially as it came paired with battery storage as part of a package or “energy package.” Other financial institutions or fintechs have offered this kind of in-house product; storage will be able to add to resilience value, and soft costs such as an energy package’s customer acquisition costs, should remain a focus for solar businesses going forward to keep costs down. Other solar technologies that have grown on tax equity include microinverters and community solar; businesses still involved in these segments should be able to ride the wave into the post-incentive market.

Policy and Technology 

State and local policy can serve as a valuable stopgap in an absence of federal incentives. Whether through rebates, tax equity, direct pay, or similar incentives, states have a chance to pick up where federal policy leaves off to maintain market access, especially in lower-income communities that otherwise stand to be left behind by solar.

On the technology side, some costs, for example, microinverters, have grown on tax equity; solar businesses focused on this innovation will be able to carry it forward into the new market. Storage is the key lever here as well, able to meet evolving compensation structures for solar exports in many key markets, and battery-plus-solar is likely the most viable path forward for storing, reselling, and capturing solar electricity into the future. Microgrids have the potential to drive down energy costs for those with the most limited access.

The solar-plus-storage value proposition can be enhanced through policy to ensure continued demand in markets with lower demand or to shore up against technology approaches more focused on ongoing resilience value.

The Solar Industry: The Next Phase 

Solar will continue to be the lowest-cost source of new electricity in the U.S., its value proposition in many markets remaining intact. But in the solar industry’s next phase of growth, nearly all stakeholders will have to do something a little bit differently than in the past to reach the same level of success, though the overall fundamentals have not changed. Market forces alone are driving fundamental demand for solar and other clean energy sources in the United States, and in some key markets, state clean energy goals are dovetailing with supportive financing programs and a clear set of decarbonization goals at the national level.

But to hit targets and to reach the next phase of clean energy growth, solar will need to meet demand. That means everything from accelerating operational best practices to continuing to adapt residential sales models that once leaned on the broad reach and efficacy of federal tax credits, to engaging state and local policy leaders to ensure access is prioritized, especially for customers for whom even unsubsidized solar will still be an important tool for savings and resilience.