Solar Market Insight Report Q3 2025

1. Key Figures

• The US solar industry installed 7.5 gigawatts direct current (GW_dc) of capacity in Q2 2025, a 24% decline from Q2 2024 and a 28% decrease since Q1 2025.
• Solar accounted for 56% of all new electricity-generating capacity added to the US grid in the first half of 2025, with a total of 18 GW installed. Combined, solar and storage accounted for 82% of new capacity in the first half of the year.
• The US added 4.3 GW of solar module manufacturing capacity in Q2, bringing the total to 55.4 GW. However, there were no additions of upstream manufacturing capacity (polysilicon, wafer, or cell manufacturing). Establishing new manufacturing facilities for this more resource-intensive and technologically complex part of the solar value chain continues to move slowly.  
• Texas installed the most solar capacity in the first half of 2025 (3.8 GW_dc), followed by California, Indiana, and Arizona.
• In Q2 2025, the residential segment installed 1,064 MW_dc of solar capacity, declining 9% year-over-year and 3% quarter-over-quarter. High interest rates, economic and policy uncertainty continue to be significant challenges for the segment.
• The commercial solar segment set a second quarter record, growing by 27% compared to Q2 2024, and adding 585 MW_dc of new capacity. Growth in California drove this increase – a healthy pipeline of NEM 2.0 installations continues to come online, making up 90% of commercial projects in the state.
• The community solar segment installed 174 MW_dc in Q2 2025, declining 52% year-over-year and 34% quarter-over-quarter. Programs in major state markets are at or close to capacity, with no notable new markets to take their place.
• The utility-scale segment installed 5.7 GW_dc in Q2 2025, decreasing 28% year-over-year and 33% quarter-over-quarter. Deployment in Texas, the segment’s largest market, slowed from recent quarters, driving the decline.
• Passage of the One Big Beautiful Bill Act (OBBBA) has fundamentally changed the policy landscape for the energy industry. Under the new law, 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.
• The solar industry is navigating several other federal policy actions. On July 15, the Department of the Interior issued a memo stating that Interior Secretary Doug Burgum will need to personally sign off on numerous types of federal permitting approvals for a solar project to move forward. Additionally, the US Treasury issued new guidance on August 15 that made changes to the formal definition of “beginning of construction” for solar projects to earn federal tax credits.
• The industry is still assessing the full impacts of these federal actions. To benchmark the possible outcomes for the solar industry, this edition of SMI includes a base case and a low case outlook. Our low case incorporates more pessimistic downside risks from new Treasury guidance and permitting constraints from the Department of the Interior.   
• From 2025-2030, our base case outlook puts total solar deployments at 246 GW_dc – 4% lower than our pre-OBBBA outlook. The negative impacts of the OBBBA are muted by 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. By comparison, our low case outlook predicts 202 GW_dc over this same timeframe – a reduction of 18%.

2. Introduction

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. Every segment saw declining volumes except for commercial solar, where a strong pipeline of projects under California’s former net metering regime continues to come online.

Second quarter residential solar installations landed just over 1 GWdc as high interest rates and economic uncertainty continue to suppress demand. Several bankruptcies of major residential solar companies also contributed to lower installation volumes. The community solar segment installed 174 MWdc, declining 52% year-over-year and 34% quarter-over-quarter. This was the segment’s lowest quarter since Q1 2021. Community solar volumes continue to wane as project pipelines in major markets with supportive policies are dwindling, with no notable new markets taking their place. Utility-scale solar installations decreased 28% year-over-year and 33% quarter-over-quarter with 5.7 GWdc installed. In Texas, the largest utility-scale solar market, average power prices earned by solar projects were down 50% in 2024 compared to 2023, which reduced development activity.

Photovoltaic (PV) solar accounted for 56% of all new electricity-generating capacity additions in the first half of 2025, remaining the dominant form of new electricity-generating capacity in the US.

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

Officially signed into law on July 4, 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.

For projects that begin construction starting in 2026 and that want to qualify for tax credits, new FEOC “material assistance” requirements will apply. This mandates that a certain share of a project’s costs cannot be paid to “specified foreign entities” or “foreign-influenced entities.” For the US solar industry, companies that are headquartered in China or that have ties to China are of the most concern. The share of a project’s costs that cannot be paid to such entities (formally called the Material Assistance Cost Ratio or MACR) starts at 40% in 2026 and increases five percentage points a year to 60% in 2030 and beyond. While US solar projects rarely source solar panels from China, some parts of the supply chain are fed by China headquartered companies or include technologies with patents held by Chinese companies.
The industry is still sorting out the implications of these new FEOC requirements. Determining which ownership structures and companies are or aren’t FEOC-compliant comes with substantial legal complexity. Furthermore, the timing of guidance on implementation of FEOC rules from the Treasury Department is still unknown.

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 15, 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 15 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 five percent 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.[1]

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

To benchmark the possible outcomes from these federal policy developments, we’ve included a low case forecast of solar deployments in addition to our base case forecast this quarter. Our base case outlook considers the impacts from the OBBBA – tax credit timelines and known FEOC requirements. Our low case outlook then layers on more pessimistic assumptions for federal permitting and Treasury Department guidance. (We finalized assumptions for our low case prior to the August 15 guidance. Please see the full report for more details by segment).

Reality is likely to land somewhere in between these two scenarios, depending on developments in the coming months.

The OBBBA’s FEOC requirements for US solar manufacturing put numerous facilities at risk

The OBBBA also has important implications for the growing solar manufacturing sector. In the second quarter, this industry continued to expand with module manufacturing capacity growing to 55.4 GW – more than annual solar installations when these factories are running at full capacity. However, we expect fewer new manufacturing facilities to come online over the coming quarters. While the Section 45X tax credits were maintained, new FEOC requirements could put those tax credits at risk. Wood Mackenzie’s analysis shows that FEOC restrictions could impact roughly half of operational solar manufacturing capacity (across solar cells and modules) (see How tariffs and policy shifts are reshaping the US solar supply chain).  Given increasing costs from tariffs and higher labor and utility costs for US manufacturers, the 45X tax credits are critical for manufacturers’ profitability. Many manufacturers will have to consider selling factories, restructuring ownership, or exiting the market if they no longer qualify for the tax credits.

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

Given this new policy context, solar project developers are acting quickly to advance projects in their pipeline. Based on our utility-scale project level tracking, there are roughly 50 GW of projects well-positioned to start construction before the end of the year and another 40 GW well-positioned to do so in H1 2026. Commercial and community solar developers will also likely safe harbor equipment or start physical work on projects to the extent possible. And due to the expiration of the 25D tax credits for residential solar, that segment is expected to experience a rush to install projects before the end of this year. Finally, near-term demand remains strong given constrained power supply and the increased cost of new gas generation. All of this will create demand pull-in over the next few years compared to our prior outlook, offsetting some of the negative impacts of the OBBBA. Broadly, our base case predicts a 5% average annual contraction in solar installations between 2025 and 2030, compared to 2% in last quarter’s outlook.   

Our low case forecast includes the same dynamics but substantially limits the capacity that can meet construction-start requirements across all solar segments (based on our assumption of more stringent definitions). In addition to a more constrained federal permitting environment, this 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 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.

3. Market segment outlooks

3.1. Residential PV

• 1,064 MWdc installed in Q2 2025
• Down 9% from Q2 2024
• Down 3% from Q1 2025

The residential solar market experiences one of the most tumultuous periods in its history

The residential solar market installed 1,064 MW_dc in Q2 2025, declining 9% year-over-year and 3% quarter-over-quarter. Q2 marked the lowest quarter of capacity since Q2 2021, when it last fell below 1 GW_dc. California, Florida, and Puerto Rico maintained their lead in the residential solar state capacity rankings in the second quarter. California added 275 MW_dc, outpacing Florida by nearly 200 MW_dc.

Many installers report a rocky start to the year. In H1 2025, capacity decreased year-over-year in 33 states, resulting in a 12% contraction compared with H1 2024. The residential solar market has struggled over the past few years, primarily due to sustained high interest rates. Consumer demand took a further hit in Q2 due to tariff and economic uncertainty, the whiplash of various OBBBA drafts, and two more bankruptcies of major financiers.

The OBBBA resulted in a 22% downgrade to our base case residential solar outlook compared with last quarter’s business-as-usual forecast. The elimination of the Section 25D ITC for customer-owned (loan and cash) systems after 2025 will significantly impact the market’s trajectory in the near-term, as nearly half of national residential solar installations were customer-owned in H1 2025. Since the passage of the OBBBA, residential sales have increased as installers rush to qualify homeowners for the ITC. This push will contribute to stronger installations in H2 2025. However, we expect only slight growth in 2025 compared with 2024, given the limited amount of time to install systems before year-end. Installations will drop by 13% in 2026 without the ITC for the customer-owned segment. The continued eligibility of third-party owned (TPO) projects for the ITC and bonus adders will partially offset the contraction in 2026 and contribute to growth starting in 2027. In our base case forecast, we project that the residential solar market will grow by 3% on average annually from 2025 to 2030. States with higher retail rates and larger TPO markets will fare better over the next few years. Details on the low case forecast, which assumes fewer TPO project qualifications after 2027, can be found in the full report.

3.2. Commercial PV

• 585 MW_dc installed in Q2 2025
• Up 11% from Q1 2025
• Up 27% from Q2 2024

Note on market segmentation: Commercial solar encompasses distributed solar projects with commercial, industrial, agricultural, school, government, or nonprofit offtakers, including remotely net-metered projects. This excludes community solar (covered in the following section).

Robust commercial solar installations show a healthy market; the OBBBA will impact long-term growth

The US commercial solar market had a massive Q2 2025, the second highest in history, with 585 MW_dc installed. This was also the segment’s largest first half of the year ever, totaling over 1 GW_dc of commercial solar in H1 2025. This growth was mostly fueled by California’s NEM 2.0 projects continuing to come online, which still comprised 90% of the state’s new commercial solar installations in the first half of the year. Other states, including Illinois, New York, Massachusetts, and Pennsylvania recorded healthy volumes in Q2.

Despite shifting federal policies, developers aim to maintain consistent project development. The OBBBA maintained tax credit transferability and direct pay provisions, which benefit US commercial solar projects. However, projects that start construction after this year will need to coordinate supply chains to comply with FEOC restrictions. Furthermore, there is considerable uncertainty around meeting construction-start rules for these projects.

We made significant adjustments to our commercial solar forecast this quarter, mostly in the long term. California NEM 2.0 projects continue to come online but are taking longer than initially estimated. We expect the state’s commercial solar installations to continue growing throughout this year, with a dip in the second half of 2026. The national commercial solar market will grow at an average annual rate of 3% from 2025 to 2030. In the near term, we expect business as usual through the end of 2026, considering most of these projects are already in interconnection queues or under construction. We expect a surge of new installations in 2027 as projects rush to meet the deadline for the tax credits. From 2028 to 2030, our outlook assumes a healthy volume of commercial projects can meet the construction-start definitions within the next year and come online over the course of the next four years. The low case forecast for commercial solar, which assumes more stringent construction-start requirements to qualify for tax credits, appears in further detail in the full report.

3.3. Community solar PV

• 174 MW_dc installed in Q2 2025
• Down 52% from Q2 2024
• Down 34% from Q1 2025

Note on market segmentation: Community solar projects are part of formal programs where multiple residential and non-residential customers can subscribe to the power produced by a local solar project and receive credits on their utility bills.

Federal policy changes slash cumulative community solar outlook by 8% compared to Q2 2025

Community solar installations declined 52% year-over-year in Q2 2025, resulting in 174 MW_dc of new capacity. Stagnating volumes in New York, where Q2 2025 capacity declined 56% year-over-year, contributed heavily to the national contraction. Nationally, H1 2025 volumes declined 36% from H1 2024, supporting our assumption that total installed capacity in 2025 will not exceed 2024’s record-breaking volumes. We expect a 29% market contraction this year, despite the continued growth of successful community solar programs in Illinois, Maryland, and New Jersey.

Passage of the OBBBA has significant negative implications for the community solar segment. However, the final bill offers a crucial four-year window for projects already under development to come online and secure the ITC. Community solar developers particularly benefit from this window due to their longer project development timelines compared to residential and commercial solar. Developers are now assessing potential risks and how to efficiently progress through their current pipelines to meet OBBBA-imposed deadlines. As of Q2 2025, there are over 9 GW_dc of community solar in various stages of development, supporting the segment’s buildout through 2030. Given the near-term pipeline and the multi-year construction window, we downgraded our cumulative five-year forecast by 8% from Q2 2025. More details on our low case scenario, which assumes that fewer projects will meet new deadlines for federal incentives, can be found in the full report.

Overall, we expect the national community solar market to contract by an average of 12% annually through 2030. Our five-year outlook includes only state markets with active, legislation-enabled programs and excludes those with proposed program legislation. Several state markets have proposed community solar programs, but stakeholders have struggled to finalize legislation so far this year. Additionally, the early expiration of the ITC and potential cancellation of the EPA’s $7 billion Solar for All funding will further complicate the design of frameworks for community solar in these new states.

3.4. Utility PV

• 5.7 GW_dc installed in Q2 2025
• Down 28% from Q2 2024
• 197 GW_dc of utility-scale solar will be added between 2025 and 2030 in our base case

Utility-scale solar installations slowed this quarter, driven by reduced activity in Texas

In Q2 2025, the utility-scale solar sector installed 5.7 GW_dc of capacity, marking a 28% year-over-year decline. Solar installations in Q2 2025 slowed compared to previous quarters, primarily due to a sharp decrease in development activity in Texas. The average power prices earned by solar projects in 2024 dropped by more than 50% compared to 2023, which has reduced the economic viability of new projects. Additionally, state policy uncertainty caused by proposed legislation last year has shaken developer confidence. Contracting activity across the country also declined, with 4.5 GW_dc of new capacity signed this quarter, down 26% from the previous year. Notably, contracted volumes were bolstered by solar projects in New York, in which NYSERDA executed agreements for over a dozen large-scale projects in May, contributing more than 2 GW of clean energy capacity statewide.

Wood Mackenzie’s base case projects 168 GW_dc of new utility-scale solar capacity from 2025 to 2030. The DOI memo has increased uncertainty related to permitting and environmental reviews, particularly for projects on federal land. This directive is expected to impact roughly 44 GW_dc of planned capacity, with Arizona, California, Utah, and Nevada most affected. We have also incorporated more refined assumptions based on power market dynamics – there is further downside in our base case for states with high reserve margins, excess capacity, and slower expected load growth. Our low case scenario, detailed in the full report, assumes greater permitting risks from the DOI memo in addition to more stringent construction-start guidelines, limiting the number of projects that can qualify for the tax credits in the near term.

4. US solar PV forecasts

5. National solar PV system pricing

• Residential system pricing is up 2% year-over-year
• Commercial system pricing is up 10% year-over-year
• Utility-scale system pricing is up 4% for both fixed-tilt and single-axis tracking year-over-year

Wood Mackenzie employs a bottoms-up modeling methodology to capture, track and report national average PV system pricing by segment for systems installed each quarter. The methodology is based on the tracked wholesale pricing of major solar components and data collected from industry interviews. Wood Mackenzie’s Supply Chain data and models are leveraged to enhance and bolster our pricing outlooks. New this quarter: we no longer break out taxes as a separate line item as those are now incorporated in the equipment category estimates. These changes have been made to the current system prices as well as historical 2024 prices.

PV system costs increased in Q2 2025 following the Trump administration’s implementation of 10% baseline tariffs in April 2025. While a 90-day pause on reciprocal tariffs was announced, the baseline tariffs remained in effect and contributed to price increases across solar market segments. The AD/CVD case on solar cells and modules from Cambodia, Malaysia, Thailand and Vietnam, which began in April 2024 and was finalized on May 20th, 2025, increased module costs by 13% year-over-year across the distributed generation segments. Residential system prices averaged $3.36/W_dc, rising 2% year-over-year, while commercial system prices were $1.57/W_dc, climbing 10% over the same timeframe.

Both utility-scale fixed-tilt and single-axis tracking system costs increased by 4% year-over-year, reaching $1.11/W_dc and $1.25/W_dc, respectively, in Q2 2025. EPC overhead costs, permitting, logistics, and miscellaneous costs increased by an average of 30% year-over-year. Despite an average annual decrease of 10% in PV modules and inverters, the total utility-scale project system cost rose in Q2 2025 compared to the same quarter last year. Engineering firms have made significant investments to develop and operate apprenticeship programs, taking on additional administrative responsibilities to comply with prevailing wage requirements. Contract negotiations and contingency provisions have also expanded as EPCs raise their margins to mitigate risks associated with tariffs and policy uncertainty.

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