The U.S. Solar Market After the Investment Tax Credit (ITC)
After nearly two decades as the financial backbone of U.S. solar growth, the Investment Tax Credit (ITC) is being phased out early. What will this mean for the U.S. solar industry?
Once the cornerstone incentive that helped drive America’s solar boom, the ITC’s accelerated retirement marks a profound turning point for developers, financiers, and manufacturers alike. What happens between now and next July could redefine not only the pace of solar deployment, but also the structure of the nation’s clean energy economy.
The ITC’s Early Exit
The Trump administration’s 2025 appropriations package, passed as part of the broader “One Big Beautiful Bill,” has upended the federal support structure for renewable energy.
The legislation accelerates the phaseout of the ITC, reducing credit availability on an expedited schedule and tightening qualification criteria. Most notably, it replaces the long-standing “5% safe harbor” rule—which allowed developers to secure tax credits by incurring minimal early project costs—with a strict on-site construction requirement.
Developers now have until July 2026 to start physical work and lock in the full credit value. For many, this has triggered a race against time: breaking ground early, stockpiling equipment, and renegotiating supply contracts to secure eligibility before the window closes.
A Short-Term Boom, a Long-Term Gap
Industry analysts describe the coming year as a paradox, a construction surge followed by uncertainty.
Developers are front-loading projects to capture remaining incentives, leading to record near-term buildout activity. But after 2026, the incentive cliff could create what some are calling a “solar gap”—a lull in new development as tax credits expire and financing terms tighten.
The near-term boom will stress supply chains already stretched by tariffs and trade restrictions. Meanwhile, project financiers are recalibrating their models to account for shifting tax equity dynamics and shorter timelines.
“Developers are rushing to meet new deadlines, but financiers are pausing to assess risk under the new rules,”
“Everyone’s racing the clock, but not everyone will cross the finish line.”
The FEOC Effect: A New Compliance Challenge
Beyond tax credits, another major change is reshaping the landscape: the Foreign Entity of Concern (FEOC) provisions.
These rules restrict the use of materials, components, and financing tied to certain foreign-controlled companies—particularly those linked to China. While the policy aims to promote domestic manufacturing and safeguard supply chains, its rollout has introduced new layers of compliance complexity.
For U.S. developers, this means vetting suppliers at unprecedented levels of detail. For manufacturers, it means competing to fill the gap left by restricted imports—while facing their own cost and capacity constraints.
The short-term result is tighter supply, higher component costs, and increased due diligence burdens. Longer term, the FEOC rules could either catalyze a renaissance in American solar manufacturing—or stall project development if domestic supply fails to scale fast enough.
The Crossroads Ahead
The combination of incentive contraction and trade restriction represents a fundamental test for the U.S. solar industry. The next 18 months will determine whether America can build a resilient, self-sufficient supply chain—or whether project economics will push developers back toward global import dependency once again.
State-level policies, corporate offtake demand, and falling technology costs could cushion the impact, but most agree that 2025–2026 will be a period of volatility. As one energy expert noted during the OPIS Global Solar Markets Webinar:
“For the first time in years, policy risk outweighs market risk.”
Bottom Line
The U.S. solar industry is entering its most uncertain chapter since the ITC was first enacted in 2006. The short-term boom may look impressive, but the long-term question remains unresolved: will policy shifts and FEOC restrictions forge a new era of domestic independence—or send developers back to relying on imports once the dust settles?