US Residential Solar Boom Faces 2026 'Demand Cliff'
Expiring tax credits and crippling grid delays create a perfect storm, pushing some installers toward insolvency while larger players pivot.
The U.S. residential solar industry, a key engine of the nation's green energy transition, is facing a severe downturn as a perfect storm of expiring federal subsidies and paralyzing grid infrastructure delays threatens to create a 'demand cliff' in 2026.
The sector is bracing for the accelerated expiration of the 30% federal Investment Tax Credit (ITC) for homeowners on December 31, 2025. The policy has been a primary driver of solar adoption, but its termination could increase the cost of a typical rooftop system by an estimated $9,000, according to industry analyses. This impending deadline has created a frantic rush among homeowners and installers to complete projects, a rush that is colliding with a massive and growing logistical bottleneck.
That bottleneck is the nation's aging electrical grid. Across the U.S., a backlog of nearly 2,600 gigawatts of proposed energy projects—more than double the entire installed capacity of the current U.S. power fleet—are waiting for permission to connect, according to research from Lawrence Berkeley National Laboratory. For solar installers, these interconnection delays can stretch from months to several years, making it increasingly difficult to get projects approved and operational before the tax credit vanishes.
The market pressure has already claimed significant casualties. Sunnova Energy International (NOVA), once a major player, filed for Chapter 11 bankruptcy in June 2025, citing mounting debt and severe liquidity concerns amidst the challenging market. Its stock has plummeted over 90% year-to-date, reflecting a near-total loss of investor confidence.
Other companies are also feeling the strain. SunPower (SPWR) has seen its shares fall more than 25% over the past year. In contrast, the sector's largest player, Sunrun (RUN), has proven more resilient, largely due to its business model.
Analysts at Barclays project a stark divergence in the market, forecasting a 20-25% contraction in the overall residential solar market in 2026. However, they anticipate that the third-party ownership (TPO) model, where a company owns the panels and sells the power to the homeowner, could grow by 30%. This is because the commercial tax credits used by TPO providers like Sunrun have a longer lifespan than the residential credit. This policy nuance has insulated Sunrun from the immediate cliff, though the company's growth is still expected to slow.
The twin pressures are forcing a rapid strategic rethink across the industry. Companies are now heavily focused on pairing battery storage with solar installations to create additional value and revenue streams. However, the Solar Energy Industries Association (SEIA) has warned that the looming policy cliff could lead to the loss of tens of thousands of jobs across the sector.
While the long-term demand for renewable energy remains robust, the residential solar industry faces a period of painful consolidation and restructuring. The coming year will test which companies can navigate the end of a critical subsidy while stuck in the worst grid traffic jam in U.S. history.