What Happens to Solar Leases If Tax Credits Disappear?

The version of Trump’s budget bill that passed the House late last month would be devastating to the rooftop solar industry. Not only would it end a tax credit for homeowners who invest in rooftop solar, it would also end subsidies for companies that lease these systems to families.

If the bill were to become law, the tax credits for new installations would terminate abruptly at the end of this year, giving companies no time to adjust to the new market reality. Rooftop solar as it exists today will cease to make financial sense in many places, and the customer base could run dry. Building owners with existing leases or power purchase agreements for rooftop solar may be wondering what will happen if the company they signed with goes under.

The first thing to understand is that many of these companies, like Sunrun and Trinity Solar, bundle their leases and PPAs and sell them to banks or other financial institutions. That upfront cash helps them expand and invest in new installations without taking on more debt. But even though they no longer own the lease, the solar company typically retains the responsibility to maintain the system and ensure it is working properly.

The biggest risk if the solar company ceases to exist is that maintenance will fall through the cracks, Roger Horowitz, the director of Go Solar Programs at the nonprofit Solar United Neighbors, told me. There may no longer be anyone monitoring your installation. Unless you’re actively keeping an eye on it, such as through a phone app, you might not notice if an inverter goes down. And then if something like that does happen, or if a bad storm causes damage, the leaseholders, aka the bank, may be unresponsive.

The good news is that as long as the system is installed correctly, rooftop solar doesn’t typically require much maintenance. “In general, the whole thing with solar is that there aren’t any moving parts,” Horowitz said.

I reached out to several solar companies to ask whether they were still signing new contracts and how their lease terms addressed the possibility of the company going out of business. Sunrun, the biggest installer in the country, did not respond.

I did get on the phone with Ed Merrick, the corporate vice president at Trinity Solar, which is the largest privately held residential solar company in the U.S. Merrick said that ever since interest rates went up, making loans less attractive, the majority of Trinity’s business has been in solar leases and PPAs. For now, the company is still moving forward with business as usual, enrolling customers in new contracts.

When I asked whether Trinity could still offer financially attractive leases and PPAs if the tax credit went away, the line went silent for a few seconds. “Doubtful,” Merrick eventually responded. “It would be very hard.” That’s especially true in states like Pennsylvania and Maryland that have low electricity rates. “Those states probably won’t have any viability for any kind of solar system for homeowners unless they just really want to be green, which is a very small subset, and those people have probably already got it,” said Merrick. But even in states with higher electricity costs like Massachusetts and Connecticut, he said it would be questionable whether they could make an attractive offer to homeowners.

Merrick agreed that the primary risk to existing customers is maintenance. “We have a huge service department,” he said. “If something were to happen to us and we can’t continue, then obviously our service department would fall in, too. I don’t think that’s gonna happen with us, but I do see a material impact to our business over the next couple of years if this bill goes through as is.”

He noted that if Trinity’s not around, the third party financial institutions who own the leases have a legal obligation to service the systems, so homeowners should still be okay, although there will likely be more hiccups in the process.

I also spoke with Tom Neyhart, the founder of PosiGen Solar, which exclusively offers solar leases and retains ownership over them. After the Inflation Reduction Act passed, the company thought it would have continuity on the tax credits through 2032, he said. The solar tax credits had been around for nearly two decades, but the IRA also made solar leases more attractive by offering a higher subsidy for projects that used domestically manufactured materials and were built in low-income neighborhoods or in so-called “energy communities” — places that have long depended on fossil fuel industries to support the local economy. Posigen raised $150 million in equity and borrowed a bunch of money to expand its footprint, Neyhart told me. It also engaged with its suppliers, asking them to move their manufacturing to the U.S.

“We went from only having basically two factories that built anything we used on the roof in the U.S. now to 20 factories that we buy from,” he said, and began listing all of the factories that arrived in the last three years — SolarEdge built projects in Texas, Florida, and Utah. Silfab, a Canadian company, is expanding in South Carolina, and moved its headquarters there. “It’s huge, it’s tens of thousands of jobs.”

Neyhart told me that PosiGen’s customers should not be worried about maintenance. “We guarantee it performs, and if it doesn’t perform, then you’re going to get a credit against your bill,” he said. “Whoever owns the lease knows that if they don’t service the account, then they’re going to lose the revenue from it.”

But Neyhart is hopeful that Congress will reverse course. He said he’s spent more time in Washington, D.C., over the last few months, lobbying for the tax credits, than he has at home in Louisiana. “I think that they realize that, if nothing else, we need a transition time,” he said. When Louisiana ended its state solar tax credit several years ago, it phased the program out over three and a half years. That gave PosiGen enough time to adjust its business model and continue to operate there. Neyhart said the company could find a way to work without the federal tax credits with a similar transition period.

“Every time I talk to a senator, especially Republican senators, they talk about business surety and ‘people have to understand what the rules of the game are.’” he said. “You just can’t pull the rug out. Senators, please don’t pull the rug out on us.”

Merrick had a similar message. “We do understand the need to eliminate subsidies on solar,” he said. “What we’d like to see is a phase down, not a cliff.”