Third-party financing is the focus for Enphase Energy as a means to strengthen their commercial operations
The solar and battery industry is bracing for a significant shift as the 25D federal solar tax credit, which has provided a 30% tax credit for homeowners with solar systems, is set to expire at the end of this year. This change is expected to cause a contraction of 20-30% in the residential solar market from 2025 to 2026.
To navigate this challenge, the industry is rapidly evolving its business models and strategies. One of the key changes is the shift towards third-party financing models, such as leasing arrangements and power purchase agreements (PPAs), which allow customers to avoid the upfront system cost and bypass the need for direct tax credits.
Companies like Enphase Energy are actively adapting to this new landscape. Enphase is enhancing its digital platforms to better support the transition to third-party ownership (TPO) models, assisting partners in deploying leased and PPA solar and storage systems. The company anticipates a "pull-forward" of business in 2025 before the credit expires, followed by a contraction in 2026.
Enphase is also manufacturing and shipping new products, such as the IQ Battery 5P, with increased U.S. domestic content, aligning with federal requirements that encourage U.S. sourced materials to qualify for other clean energy tax incentives.
The company is also expanding the digital platform Solargraf for installers to facilitate third-party ownership partner integrations. Enhancements to Solargraf include custom rate structures and improved dealership management features for TPO businesses.
Enphase is also preparing for the future by integrating "non-China" cells into battery packs by early next year to avoid potential punitive tariffs on Chinese-made battery materials.
Later next year, Enphase plans to begin selling a bidirectional EV charging solution that can back up a home without standalone batteries. This solution is expected to be a key part of Enphase's participation in virtual power plant programs and earning revenue in both regulated and deregulated markets.
The expiration of the 25D credit presents both a challenge and an opportunity: it forces a market contraction but simultaneously accelerates innovation in financing and technology deployment, with companies like Enphase positioning themselves to lead under the new framework.
However, the industry is not without its concerns. After Enphase's stock fell about 7% after-hours on Tuesday and another 14% in regular trading Wednesday, wiping out gains during the regular trading session, it's clear that the industry's future is uncertain.
Some analysts, like Julien Dumoulin-Smith, an equity analyst with investment bank Jefferies, expected demand pull-in from the potential expiry of 25D but were too optimistic. Jefferies analysts' conversations with industry players suggest the market could contract as much as 30% next year.
TPO installers have until the middle of 2026 to make "safe harbor" equipment purchases, but the industry must evolve rapidly toward leasing arrangements and power purchase agreements to remain competitive without the credit's financial boost.
As the industry prepares for this shift, it's clear that innovation and adaptability will be key to survival and success in the new landscape.
- To stay competitive, the solar and battery industry is migrating towards third-party financing models, such as leasing and power purchase agreements (PPAs), as federal tax incentives like the 25D solar credit expire.
- Enphase Energy, a company in the industry, is transforming its business by improving digital platforms, manufacturing products with increased U.S. domestic content, and integrating non-China cells to avoid tariffs, all while expanding Solargraf for third-party ownership partner integrations.
- The expiration of the 25D solar credit presents both an opportunity for innovation and a challenge, as the industry may contract by up to 30% next year, with analysts like Julien Dumoulin-Smith from Jefferies expecting a market contraction.
