Outlook for US solar worsens under the OBBBA

The US solar industry installed 7.5 gigawatts-direct current (GWdc) of capacity in the second quarter of 2025, a 24% decline from Q2 2024 and a 28% decrease compared with Q1 2025. Market and policy uncertainty for the solar industry has escalated over the last year, concretely impacting project development.  

Most significantly since our last report, the One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th and has fundamentally changed the federal policy landscape for energy.

In our US solar market insight Q3 2025 report, created in collaboration with the Solar Energy Industries Association (SEIA), we report on the downgrade of our US solar outlook since passage of the bill, as well as a low case forecast that captures further uncertainty from new Treasury guidance and permitting constraints.  

Purchase the full report here, download the executive summary, or read on for some key highlights. 

The One Big Beautiful Bill Act (OBBBA) is a seismic shift for the solar industry 

Officially signed into law on July 4th, 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 (for customer-owned residential solar) 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. 

Given this new policy context, solar project developers are acting quickly to advance projects in their pipeline. From 2025-2030, our base case outlook puts total solar deployments at 246 GWdc – 4%, or 11 GWdc, lower than our pre-OBBBA outlook. The negative impacts of the OBBBA are muted in the near-term. This is due to projects already underway, the rush to bring projects online before tax credit deadlines, and intense demand for power supply as new gas generation has become more expensive and less available.   

Our 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 15th, 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 (whether they are directly sited on federal lands or not) that would be under heightened scrutiny. 

Additionally, the Treasury Department issued new guidance on August 15th 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 5% 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.   

Effective September 2nd, the new Treasury guidance mostly maintains these criteria. But for projects over 1.5 MWac, it removes the Five Percent Safe Harbor option, requiring these projects to utilize the Physical Work Test. While the solar industry is familiar with the Physical Work Test, it offers fewer bright line tests than the Five Percent Safe Harbor. This will create some uncertainty for solar projects aiming to start construction after September 2nd.  And importantly, the Treasury noted that it has not yet addressed construction-start rules for the sake of the new Foreign Entity of Concern (FEOC) requirements that will apply to projects starting construction in 2026. 

We’ve included a low case forecast of solar deployments in addition to our base case forecast this quarter to capture these additional uncertainties. Our low case outlook has more pessimistic assumptions for federal permitting and Treasury Department guidance.   

Our five-year outlook predicts 246 GWdc of solar installations, with 18% downside risk (44 GWdc) in our low case 

Our low case forecast results in about 30% less solar capacity coming online in 2026 and 2027 compared to our 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, our low case is 18% lower (44 GWdc) than our 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. 

Learn more 

The full report explores each segment in detail and delves into the assumptions used for each forecast scenario. Fill in the form at the top of the page for a complimentary copy of the 15-page executive summary.