This is an extract from a recent report “US Solar Market Insight” by Wood Mackenzie and Solar Energy Industries Association.
The US solar industry installed 7.5 GWdc of capacity in the second quarter of 2025, a 24 per cent decline from Q2 2024 and a 28 per cent decrease compared with Q1 2025. Every segment saw declining volumes except for commercial solar, where a strong pipeline of projects under California’s former net metering regime continues to come online. Second quarter residential solar installations landed just over 1 GWdc as high interest rates and economic uncertainty continue to suppress demand. Several bankruptcies of major residential solar companies also contributed to lower installation volumes. The community solar segment installed 174 MWdc, declining 52% year-over-year and 34% quarter-over-quarter. This was the segment’s lowest quarter since Q1 2021.
Community solar volumes continue to wane as project pipelines in major markets with supportive policies are dwindling, with no notable new markets taking their place. Utility-scale solar installations decreased 28% year-over-year and 33% quarter-over-quarter with 5.7 GWdc installed. In Texas, the largest utility-scale solar market, average power prices earned by solar projects were down 50% in 2024 compared to 2023, which reduced development activity. Photovoltaic (PV) solar accounted for 56% of all new electricity-generating capacity additions in the first half of 2025, remaining the dominant form of new electricity-generating capacity in the US.
The One Big Beautiful Bill Act (OBBBA) is a seismic shift for the solar industry
Officially signed into law on July 4, the OBBBA has fundamentally changed the federal policy landscape for energy. Sweeping changes to tax credits across numerous technologies as well as new Foreign Entities of Concern (FEOC) requirements will serve as an inflection point for multiple trends across the power sector. Most importantly for the solar industry, the OBBBA cuts short many of the federal tax credits previously available as a result of the 2022 Inflation Reduction Act (IRA).
The solar industry will no longer have access to the Section 48E and 45Y tax credits after 2027 or the Section 25D tax credits after 2025. These tax credits were previously available in full until US greenhouse gas emissions reached 25% of 2022 levels – a threshold that Wood Mackenzie forecasts would not occur until after 2040. However, if a solar project starts construction on or before July 4, 2026, it has at least four years to come online to earn tax credits. Otherwise, solar projects that begin construction after that date must be placed in service by the end of 2027 to be eligible for 48E and 45Y credits.
For projects that begin construction starting in 2026 and that want to qualify for tax credits, new FEOC “material assistance” requirements will apply. This mandates that a certain share of a project’s costs cannot be paid to “specified foreign entities” or “foreign-influenced entities.” For the US solar industry, companies that are headquartered in China or that have ties to China are of the most concern. The share of a project’s costs that cannot be paid to such entities starts at 40% in 2026 and increases five percentage points a year to 60% in 2030 and beyond. The industry is still sorting out the implications of these new FEOC requirements. Determining which ownership structures and companies are or aren’t FEOC-compliant comes with substantial legal complexity. Furthermore, the timing of guidance on implementation of FEOC rules from the Treasury Department is still unknown.
Low case forecast captures downside risk from new US Treasury guidance and permitting uncertainty
On top of these massive tax credit changes, the solar industry is navigating several other federal policy actions. On July 15, days after passage of the OBBBA, the Department of the Interior (DOI) issued a memorandum stating that Interior Secretary Doug Burgum will need to personally sign off on numerous types of federal permitting approvals for solar and wind projects. The scope of the memo is still unclear – it named dozens of actions that projects might need to take that would be under heightened scrutiny.
Additionally, the Treasury Department issued new guidance on August 15 that made changes to the formal definition of the “beginning of construction” for solar and wind projects utilizing federal tax credits. Under the former definitions, a project could begin construction by one of two pathways: incur at least five percent of the project’s costs (referred to as the “Five Percent Safe Harbor”) or begin onsite or offsite “physical work of a significant nature” (known as the “Physical Work Test”). Once a project uses either pathway, it must be placed in service no later than the end of the calendar year, that is four years after the beginning of construction.
The new Treasury guidance, effective September 2, mostly maintains these criteria. But for projects over 1.5 MWac, it removes the Five Percent Safe Harbor option, requiring them to utilize the Physical Work Test. While the solar industry is familiar with the Physical Work Test, it offers fewer bright line assessments than the Five Percent Safe Harbor. This will create some uncertainty for solar projects aiming to start construction after September 2 of this year.
The OBBBA’s FEOC requirements for US solar manufacturing put numerous facilities at risk
The OBBBA also has important implications for the growing solar manufacturing sector. In the second quarter, this industry continued to expand with module manufacturing capacity growing to 55.4 GW – more than annual solar installations when these factories are running at full capacity. However, fewer new manufacturing facilities to come online over the coming quarters is expected. While the Section 45X tax credits were maintained, new FEOC requirements could put those tax credits at risk. Wood Mackenzie’s analysis shows that FEOC restrictions could impact roughly half of operational solar manufacturing capacity (across solar cells and modules). Given increasing costs from tariffs and higher labor and utility costs for US manufacturers, the 45X tax credits are critical for manufacturers’ profitability. Many manufacturers will have to consider selling factories, restructuring ownership, or exiting the market if they no longer qualify for the tax credits.
Five-year outlook predicts 246 GWdc of solar installations, with 18% downside risk (44 GWdc) in low case
Given this new policy context, solar project developers are acting quickly to advance projects in their pipeline. Based on utility-scale project level tracking, there are roughly 50 GW of projects well-positioned to start construction before the end of the year and another 40 GW well-positioned to do so in H1 2026. Commercial and community solar developers will also likely safe harbor equipment or start physical work on projects to the extent possible. And due to the expiration of the 25D tax credits for residential solar, that segment is expected to experience a rush to install projects before the end of this year. Finally, near-term demand remains strong given constrained power supply and the increased cost of new gas generation. All of this will create demand pull-in over the next few years compared to prior outlook, offsetting some of the negative impacts of the OBBBA. Broadly, base case predicts a 5% average annual contraction in solar installations between 2025 and 2030, compared to 2% in last quarter’s outlook.
The low case forecast includes the same dynamics but substantially limits the capacity that can meet construction-start requirements across all solar segments. In addition to a more constrained federal permitting environment, this results in about 30% less solar capacity coming online in 2026 and 2027 compared to base case. The differential between the two forecasts softens from 2028 onward, averaging 17% less capacity in the low case. Strong demand for new energy supply and rising power prices strengthen the market fundamentals for new solar projects in the long term. Overall, low case is 18% lower than the base case over the next five years. The market reality for the solar industry will be shaped by federal policy actions and their outcomes in the coming months.
Market segment outlooks
Residential PV
The residential solar market experiences one of the most tumultuous periods in its history. The residential solar market installed 1,064 MWdc in Q2 2025, declining 9% year-over-year and 3% quarter-over-quarter. Q2 marked the lowest quarter of capacity since Q2 2021, when it last fell below 1 GWdc. California, Florida, and Puerto Rico maintained their lead in the residential solar state capacity rankings in the second quarter. California added 275 MWdc, outpacing Florida by nearly 200 MWdc. Many installers report a rocky start to the year. In H1 2025, capacity decreased year-over-year in 33 states, resulting in a 12% contraction compared with H1 2024. The residential solar market has struggled over the past few years, primarily due to sustained high interest rates. Consumer demand took a further hit in Q2 due to tariff and economic uncertainty, the whiplash of various OBBBA drafts, and two more bankruptcies of major financiers.
The OBBBA resulted in a 22% downgrade to base case residential solar outlook compared with last quarter’s business-as-usual forecast. The elimination of the Section 25D ITC for customer-owned (loan and cash) systems after 2025 will significantly impact the market’s trajectory in the near-term, as nearly half of national residential solar installations were customer-owned in H1 2025. Since the passage of the OBBBA, residential sales have increased as installers rush to qualify homeowners for the ITC. This push will contribute to stronger installations in H2 2025. However, only slight growth in 2025 compared with 2024 is expected, given the limited amount of time to install systems before year-end. Installations will drop by 13% in 2026 without the ITC for the customer-owned segment. The continued eligibility of third-party owned (TPO) projects for the ITC and bonus adders will partially offset the contraction in 2026 and contribute to growth starting in 2027. In base case forecast, it is projected that the residential solar market will grow by 3% on average annually from 2025 to 2030. States with higher retail rates and larger TPO markets will fare better over the next few years.
Commercial PV
Robust commercial solar installations show a healthy market; the OBBBA will impact long-term growth. The US commercial solar market had a massive Q2 2025, the second highest in history, with 585 MWdc installed. This was also the segment’s largest first half of the year ever, totaling over 1 GWdc of commercial solar in H1 2025. This growth was mostly fueled by California’s NEM 2.0 projects continuing to come online, which still comprised 90% of the state’s new commercial solar installations in the first half of the year. Other states, including Illinois, New York, Massachusetts, and Pennsylvania recorded healthy volumes in Q2. Despite shifting federal policies, developers aim to maintain consistent project development. The OBBBA maintained tax credit transferability and direct pay provisions, which benefit US commercial solar projects. However, projects that start construction after this year will need to coordinate supply chains to comply with FEOC restrictions. Furthermore, there is considerable uncertainty around meeting construction-start rules for these projects.
Significant adjustments have been made to commercial solar forecast this quarter, mostly in the long term. California NEM 2.0 projects continue to come online but are taking longer than initially estimated. The state’s commercial solar installations are expected to continue growing throughout this year, with a dip in the second half of 2026. The national commercial solar market will grow at an average annual rate of 3% from 2025 to 2030. In the near term, business as usual through the end of 2026 is expected, considering most of these projects are already in interconnection queues or under construction. A surge of new installations in 2027 is expected as projects rush to meet the deadline for the tax credits. From 2028 to 2030, outlook assumes a healthy volume of commercial projects can meet the construction-start definitions within the next year and come online over the course of the next four years.
Community solar PV
Federal policy changes slash cumulative community solar outlook by 8% compared to Q2 2025. Community solar installations declined 52% year-over-year in Q2 2025, resulting in 174 MWdc of new capacity. Stagnating volumes in New York, where Q2 2025 capacity declined 56% year-over-year, contributed heavily to the national contraction. Nationally, H1 2025 volumes declined 36% from H1 2024, supporting the assumption that total installed capacity in 2025 will not exceed 2024’s record-breaking volumes. A 29% market contraction is expected this year, despite the continued growth of successful community solar programs in Illinois, Maryland, and New Jersey.
Passage of the OBBBA has significant negative implications for the community solar segment. However, the final bill offers a crucial four-year window for projects already under development to come online and secure the ITC. Community solar developers particularly benefit from this window due to their longer project development timelines compared to residential and commercial solar. Developers are now assessing potential risks and how to efficiently progress through their current pipelines to meet OBBBA-imposed deadlines. As of Q2 2025, there are over 9 GWdc of community solar in various stages of development, supporting the segment’s buildout through 2030. Given the near-term pipeline and the multi-year construction window, cumulative five-year forecast has been downgraded by 8% from Q2 2025.
Overall, the national community solar market is expected to contract by an average of 12% annually through 2030. The five-year outlook includes only state markets with active, legislation-enabled programs and excludes those with proposed program legislation. Several state markets have proposed community solar programs, but stakeholders have struggled to finalize legislation so far this year. Additionally, the early expiration of the ITC and potential cancellation of the EPA’s $7 billion Solar for All funding will further complicate the design of frameworks for community solar in these new states.
Utility PV
Utility-scale solar installations slowed this quarter, driven by reduced activity in Texas. In Q2 2025, the utility-scale solar sector installed 5.7 GWdc of capacity, marking a 28% year-over-year decline. Solar installations in Q2 2025 slowed compared to previous quarters, primarily due to a sharp decrease in development activity in Texas. The average power prices earned by solar projects in 2024 dropped by more than 50% compared to 2023, which has reduced the economic viability of new projects. Additionally, state policy uncertainty caused by proposed legislation last year has shaken developer confidence. Contracting activity across the country also declined, with 4.5 GWdc of new capacity signed this quarter, down 26% from the previous year.
Notably, contracted volumes were bolstered by solar projects in New York, in which NYSERDA executed agreements for over a dozen large-scale projects in May, contributing more than 2 GW of clean energy capacity statewide. Wood Mackenzie’s base case projects 168 GWdc of new utility-scale solar capacity from 2025 to 2030. The DOI memo has increased uncertainty related to permitting and environmental reviews, particularly for projects on federal land. This directive is expected to impact roughly 44 GWdc of planned capacity, with Arizona, California, Utah, and Nevada most affected. More refined assumptions have also been incorporated based on power market dynamics – there is further downside in the base case for states with high reserve margins, excess capacity, and slower expected load growth.
National solar PV system pricing
PV system costs increased in Q2 2025 following the Trump administration’s implementation of 10% baseline tariffs in April 2025. While a 90-day pause on reciprocal tariffs was announced, the baseline tariffs remained in effect and contributed to price increases across solar market segments. The AD/CVD case on solar cells and modules from Cambodia, Malaysia, Thailand and Vietnam, which began in April 2024 and was finalized on May 20th, 2025, increased module costs by 13% year-over-year across the distributed generation segments. Residential system prices averaged $3.36/Wdc, rising 2% year-over-year, while commercial system prices were $1.57/Wdc, climbing 10% over the same timeframe.
Both utility-scale fixed-tilt and single-axis tracking system costs increased by 4% year-over-year, reaching $1.11/Wdc and $1.25/Wdc, respectively, in Q2 2025. EPC overhead costs, permitting, logistics, and miscellaneous costs increased by an average of 30% year-over-year. Despite an average annual decrease of 10% in PV modules and inverters, the total utility-scale project system cost rose in Q2 2025 compared to the same quarter last year. Engineering firms have made significant investments to develop and operate apprenticeship programs, taking on additional administrative responsibilities to comply with prevailing wage requirements. Contract negotiations and contingency provisions have also expanded as EPCs raise their margins to mitigate risks associated with tariffs and policy uncertainty.
Access the report here
