President Donald Trump's "big, beautiful bill," now being taken up by the Republican-controlled Senate, would eliminate a 30% tax credit for solar leasing companies that charge homeowners a monthly fee for panels - one of numerous cuts directed at clean energy subsidies passed by former President Joe Biden.
That provision, inserted shortly before the bill passed the House of Representatives on May 22, risks stifling a sector that buys American-made equipment, employs thousands of people and relieves strain on the grid, according to industry backers.
"That's one of the harsher components of the one big, beautiful bill currently," said Gabe Rubio, a principal in the business incentives and tax credits practice at professional services firm BDO.
Tax credits for homeowners who own their own rooftop systems would also be eliminated.
The changes could result in as much as 40% less residential solar capacity being installed over the next five years, according to energy research firm Wood Mackenzie.
Solar companies are lobbying the Senate to make changes to the bill before it becomes law.
"America’s home solar and storage industry is a powerful economic growth engine," Sunrun (RUN.O) CEO Mary Powell said in a statement. "Senate Republicans now have an opportunity to advance the administration’s energy independence agenda by amending this bill to keep American energy prices low and create well-paying U.S. manufacturing jobs."
Trump campaigned on a promise to repeal the clean energy tax credits in Biden's 2022 Inflation Reduction Act, arguing they are expensive, unnecessary and harmful to business.
Republican backers of the bill say the subsidy cuts would free up billions of dollars for other priorities.
More than 5 million U.S. homes have solar panels, according to the Solar Energy Industries Association.
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An earlier version of the bill had protected the credit for leased solar systems, but fiscal hawks including Representative Chip Roy of Texas have said publicly that they pressed for deeper cuts to clean energy credits at the eleventh hour.
Roy's office did not respond to a request for comment.
Solar leasing was pioneered two decades ago by companies including Sunrun and SolarCity, which is now owned by Elon Musk's company Tesla(TSLA.O) , and quickly became the primary way home solar panels were financed.
Under the model, solar installers partner with financiers that own the rooftop panels and offset their federal tax bills by claiming the credit. Homeowners either pay a monthly fixed fee to lease the equipment or pay for the electricity the system generates under a power purchase agreement (PPA).
In what some analysts have said could be a loophole, the House bill directly references leased systems but does not mention PPAs.
About 44% of residential systems sold today are under such arrangements, according to EnergySage, an online solar marketplace.
Solar installers say undermining the subsidies could have a ripple effect on U.S. manufacturers that supply them.
Freedom Forever, a top privately-held installer based in Temecula, California, said in two years it has gone from using no U.S.-made equipment to now sourcing 85% of it from American facilities.
That is thanks to another IRA subsidy that provides bonus 10% tax credits for using American-made equipment.
"The administration wants to bring manufacturing back to the United States, and that's what our industry has been doing for the last two to three years," Freedom Forever CEO Brett Bouchy said.
