This small but mighty tax credit is boosting U.S. solar manufacturing—but it's at risk

The residential solar tax credit has contributed to a boom in domestic solar panel manufacturing and accelerated solar adoption nationwide. That progress is now threatened by the likely repeal of section 25D, which provides a tax credit to U.S. homeowners equal to 30% of their solar installation costs.

Not only has the tax credit made it much more affordable for the average American to go solar, it’s also helped bolster domestic manufacturing by creating more demand for solar panels. Without 25D, solar manufacturing and the jobs that come along with it will suffer.

If Republican lawmakers succeed in passing their current tax proposal, the residential solar tax credit could vanish by the end of the year. This abrupt policy shift—together with the potential repeal of other key Inflation Reduction Act (IRA) tax credits—threatens to devastate the solar industry and derail the nation’s clean energy transition. A repeal of 25D would weaken consumer demand for American-made solar panels and disrupt the long-term stability needed for U.S. solar manufacturers to grow their onshore investments.

"Over 28 gigawatts (GW) of new domestic solar panel manufacturing came online in 2024," said Sean Gallagher, senior vice president of policy at the Solar Energy Industries Association (SEIA). "A robust residential solar industry has created the demand for domestically produced products, and eliminating the 25D credit would result in less U.S. manufacturing.”

At a time when electricity prices are rapidly rising and the U.S. power grid is under strain, stripping away these credits will disrupt the country’s solar manufacturing momentum and put our energy future at risk.

Stay informed on the latest industry news—delivered to your inbox each month. Sign up for EnergySage’s newsletter.

More than five million homes in the U.S. have solar panels, which accounts for roughly 7% of the more than 84 million homes deemed eligible for solar installations, according to a 2024 SEIA report, which projected that the number of solar-equipped U.S. homes would grow to over 15% by 2030. With 25D on the chopping block, however, the outlook for growth in the residential solar industry will dim significantly. 

The 25D tax credit has been instrumental in this growth by reducing the upfront costs associated with home solar installations. Without this incentive, the cost of a typical residential solar panel system, which hovers around $20,552 after ITC tax credits, would increase by $9,000, according to EnergySage quote data.

According to Rewiring America, over 1.2 million homeowners utilized the 25D tax credit in 2023 alone. Without this credit making solar installations more affordable for American households, going solar could become unfeasible for many.

This means that for those interested in going solar, the time to install is right now. If Republicans move forward with their current 25D repeal, homeowners will need to complete their solar installation before the end of 2025 to be eligible for the 30% tax credit.

Since the IRA was signed into law three years ago, 64 new or expanded U.S. solar manufacturing facilities have been announced, according to SEIA. If the bill is enacted, SEIA estimates that nearly 300 U.S. solar and energy storage factories will be in jeopardy. Without a domestic supply of key solar components—and new tariffs reaching up to 3,521% on a vast majority of solar imports—the U.S. solar industry could face product shortages, increased costs, and stifled growth in the months and years ahead. 

The U.S. saw a dramatic expansion in solar manufacturing last year, which brought the country’s total domestic solar manufacturing capacity to over 50 GW—a direct result of the IRA’s long-term tax incentives and manufacturing provisions. 

Four credits in particular have made that growth possible: the 45X Advanced Manufacturing Production tax credit, which incentivizes domestic production of clean energy components, the 48C Advanced Energy Project tax credit, which supports investment in facilities that produce these components, and deployment credits like 25D (for residential systems) and 48E/45Y (for utility-scale and commercial projects). 

While not as obviously tied to incentivizing onshoring, 25D plays a crucial role in stimulating demand for residential solar panels. U.S. manufacturers have ramped up production to meet this demand from homeowners, leading to significant investments in manufacturing facilities and helping to stabilize the solar industry overall.

Amendments to IRA tax credits in the budget bill

In addition to eliminating the residential solar tax credit after December 31, 2025, the current “One, Big, Beautiful Bill” would remove phaseouts for the 48E/45Y credit, requiring that projects must begin construction within 60 days of the bill’s enactment, and be placed in service before December 31, 2028, to receive credits. 

For the advanced manufacturing tax credit (45X), credits will begin to phase out by 25% per year for solar components sold after December 31, 2029, before expiring after 2031. 

The House bill would also eliminate transferability for IRA credits, which allows companies to sell or transfer their tax benefits to a third party, after the end of 2027. 

A set of complex “prohibited foreign entity” rules were also introduced, which would prohibit 48E/45Y/45X tax credit eligibility for projects that use “material assistance” from a FEOC, or “Foreign Entity of Concern.” Any Chinese-backed solar factories, or facilities using raw materials or components with ties to China (a country which controls more than 80% of the global solar supply chain), would be ineligible for the credit.

While domestic solar panel or “module” manufacturing is growing, the panels are merely the end product in a complex solar supply chain. The U.S. solar industry still relies on imported solar cells and components from Southeast Asian countries, a region where China has invested billions of dollars to expand its manufacturing base. 

Cambodia, Vietnam, Malaysia, and Thailand, which are now facing an additional layer of anti-dumping duties, supplied more than 80% of U.S. solar imports in 2024. IRA incentives have helped reverse this trend, bringing back entire segments of the solar supply chain to the U.S. that had previously been almost exclusively outsourced abroad. 

U.S. facilities began producing solar cells domestically toward the end of 2024, for the first time since 2019, according to SEIA. Although companies have already pledged to build factories for 56 GW of solar cell capacity in the U.S. within the next few years, these projects will hinge on the future of IRA tax credits and residential solar demand, both of which are now uncertain.

Access to American-made manufacturing components, as well as other essential materials like solar glass, racking systems, and inverters, is crucial to securing a strong, stable supply chain. It also might not be possible without domestic content incentives and federal investments in place to support the U.S. solar industry.

The U.S. has experienced a fivefold increase in solar panel production since the passage of the IRA, SEIA reports. Continued industrial development and progress depends on maintaining the clean energy policies that made this growth possible. 

The heavy cuts to key climate and energy provisions in the Republican budget bill will kill investments, jobs, environmental protections, and send electric bills skyrocketing for the average American. 

GOP lawmakers face an uphill battle as their megabill moves through Congress, thanks to party infighting and vocal opposition from clean energy advocates, but your voice is still needed.

If you’d like to take action to protect the residential solar tax credit, fill out this form to tell Congress why 25D must be preserved to protect manufacturing jobs and local economies.