Dive Brief:
As the federal tax credits for residential solar systems are set to expire on December 31, many solar-only installers may face challenges. However, independent energy installation businesses have shown resilience over the years. Marco Krapels, Chief Marketing Officer of Enphase, believes these companies will adapt to the changing landscape more effectively than expected.
Prepaid leases are anticipated to stabilize the market by minimizing upfront costs and long-term pricing risks for homeowners, while providing a fresh promotional tool for installers.
According to Krapels, tech companies and data center developers could help lighten the load on the grid by subsidizing distributed energy projects.
Dive Insight:
Experts in the distributed energy sector foresee a downturn for the residential solar and energy storage markets in 2026.
This past summer, Jefferies, an investment bank, predicted a significant 30% contraction in the solar market. Meanwhile, energy consultancy Wood Mackenzie projected a 6% decline in energy storage installations. Enphase’s CEO, Badri Kothandaraman, expressed a personal belief that the residential solar market could shrink by 20% next year.
In light of declining sales figures, analysts anticipate that third-party-owned systems will take a larger slice of the market. Jefferies projects a 25% increase in third-party ownership, often referred to as TPO.
The TPO model has steadily gained traction, currently comprising nearly half of new installations. Unlike systems owned by customers, TPO systems are maintained by energy providers or financial firms, with customers leasing the equipment or paying a rate based on their energy usage.
One key benefit of TPO systems is their eligibility for the section 48E investment tax credit, which can cover a significant part of construction costs and has a longer timeline compared to customer-owned systems. This credit benefits companies like Sunrun, whose stock value has surged since this legislation passed.
Interestingly, this growth in TPO marks a slight reversal from a previous trend towards customer ownership that gained momentum over the last decade. Many larger installers, including Sunrun, previously focused on loans for customers who wanted to own the equipment outright.
Currently, a majority of Sunrun’s contracts depend on long-term subscriptions where the company retains ownership of the solar equipment. Recent figures show that Sunrun holds 36% of the U.S. market for solar subscriptions. This approach also allows companies to maximize profits by enrolling their systems in virtual power plant initiatives, like California’s Demand Side Grid Support.
Krapels noted that Enphase is collaborating with TPO financing providers to introduce new products, particularly in key markets such as California. One innovative offering has a 25-year term, starting as a prepaid lease. Customers repay the initial cost through a loan and acquire ownership of the equipment after five years. A notable feature of this model is the absence of an escalator clause; prices remain stable throughout the contract.
This pricing structure offers protection against rising utility costs. Krapels explained that customers are more inclined to invest when they see a clear opportunity to reduce their energy expenses by at least 15%—something more feasible without an escalator clause. Prepaid lease payments may also benefit from upfront incentives provided by local utilities, further easing the financial burden on customers.
“Customers are essentially looking for a lower monthly payment compared to their utility costs,” he added.
Krapels expressed confidence that independent installers would adapt their business practices once the current policies expire, citing past experiences and an ongoing focus on areas like energy storage and electric vehicle infrastructure.
“We’re celebrating our 20th anniversary in 2026, and some installers have been with us since we began,” he remarked. “As homes increasingly adopt electric solutions, the skills these installers have acquired can be applied beyond solar energy.”
Additionally, Krapels mentioned that Enphase sees potential partnerships with data center companies as they seek to relieve pressure on overloaded grids. A recent report from the nonprofit Rewiring America indicated that tech and infrastructure firms might unlock nearly 100 GW of grid capacity by covering a portion of new solar and energy storage costs. This initiative could mitigate the impact of the soon-to-expire 25D tax credit for customer-owned systems.
Moreover, this strategy may help tech companies tackle local opposition to data centers, as Krapels pointed out, “It’s a way to engage the community and get them excited about the data centers by involving financial incentives.”